This quarterly report contains certain statements that are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical fact, included herein or incorporated herein by reference are "forward-looking statements." Included among "forward-looking statements" are, among other things:

• statements relating to the construction and operation of each of our existing or proposed liquefied natural gas ("LNG") receiving terminals or our existing or proposed pipelines, or expansions or extensions thereof, including statements concerning the completion or expansion thereof by certain dates or at all, the costs related thereto and certain characteristics, including amounts of regasification and storage capacity, the number of storage tanks and docks, pipeline deliverability and the number of pipeline interconnections, if any;

• statements regarding future levels of domestic natural gas production, supply or consumption; future levels of LNG production or LNG imports into North America; sales of natural gas in North America; and the transportation, other infrastructure or prices related to natural gas, LNG or other energy sources or hydrocarbon products;

• statements regarding any financing transactions or arrangements, or ability to enter into such transactions or arrangements, whether on the part of Cheniere or any subsidiary or at the project level;

• statements regarding any terminal use agreement ("TUA") or other commercial arrangements presently contracted, optioned or marketed or potential arrangements to be performed substantially in the future, including any cash distributions and revenues anticipated to be received and the anticipated timing thereof, and statements regarding the amounts of LNG regasification capacity that are, or may become subject to, TUAs or other contracts;

• statements regarding counterparties to our TUAs, construction contracts and other contracts;

• statements regarding any business strategies, any business plans or any other plans, forecasts, projections or objectives, including potential revenues, capital expenditures, cost savings and strategic options, any or all of which are subject to change;

• statements regarding legislative, governmental, regulatory, administrative or other public body actions, requirements, permits, investigations, proceedings or decisions;

• statements regarding our anticipated LNG and natural gas marketing activities; and

• any other statements that relate to non-historical or future information.

These forward-looking statements are often identified by the use of terms and phrases such as "achieve," "anticipate," "believe," "estimate," "expect," "forecast," "plan," "potential," "project," "propose," "strategy" and similar terms and phrases. Although we believe that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report.

As used herein, the terms "Cheniere," "the Company," "we," "our" and "us" refer to Cheniere Energy, Inc. and its wholly-owned or controlled subsidiaries.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2008. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these risk factors. These forward-looking statements are made as of the date of this quarterly report.

The following discussion and analysis presents management's view of our business, financial condition and overall performance and should be read in conjunction with our consolidated financial statements and the accompanying notes in Item 1. "Consolidated Financial Statements." This information is intended to provide investors with an understanding of our past performance, current financial condition and outlook for the future.

Overview

We are engaged primarily in the business of developing and constructing, and then owning and operating, a network of up to three onshore LNG receiving terminals and related natural gas pipelines. In addition, we are engaged to a limited extent in LNG and natural gas marketing activities, and also to a limited extent in oil and natural gas exploration and development activities in the Gulf of Mexico.

Overview of Significant 2009 Events

In the first six months of 2009, we continued to execute our strategy to complete construction of the Sabine Pass LNG, L.P. ("Sabine Pass LNG") receiving terminal and to generate steady and reliable revenues under long-term TUAs of Sabine Pass LNG. The major events for the first six months of 2009 include the following:

• the receipt of capacity reservation fee payments from Cheniere Marketing, LLC ("Cheniere Marketing"), a wholly owned subsidiary of Cheniere, Total Gas & Power North America, Inc. (formally known as Total LNG USA, Inc.) ("Total") and Chevron U.S.A., Inc. ("Chevron");

• the purchase, transportation and successful unloading of an additional LNG commissioning cargo for the Sabine Pass LNG receiving terminal;

• the receipt of limited partner distributions from Freeport LNG Development, L.P. ("Freeport LNG");

• the purchase of our first commercial cargo; and

• the reduction of debt by exchanging $120.4 million aggregate principal amount of our 2¼% Convertible Senior Unsecured Notes due 2012 ("Convertible Senior Unsecured Notes") for a combination of $30.0 million cash and cash equivalents and 4.0 million shares of our common stock, reducing our principal amount due in 2012 to $204.6 million, at June 30, 2009. As a result of the exchange, we recognized a gain of $45.4 million that we have reported as gain on early extinguishment of debt in our Consolidated Statements of Operations for the three and six months ended June 20, 2009.

Liquidity and Capital Resources

                                             Sabine                                Other           Consolidated
                                           Pass LNG,       Cheniere Energy        Cheniere       Cheniere Energy,
(in thousands)                                L.P.         Partners, L.P.       Energy, Inc.           Inc.
Cash and cash equivalents                  $        -     $               -     $     88,946     $         88,946
Restricted cash and cash equivalents          224,856                34,878            5,265              264,999
Total                                      $  224,856     $          34,878     $     94,211     $       353, 945

As of June 30, 2009, we had unrestricted cash and cash equivalents of $89.0 million. In addition, we had restricted cash and cash equivalents of $265.0 million, which were designated for the following purposes: $128.8 million for Sabine Pass LNG's working capital; $96.1 million for interest payments related to the Senior Notes described below; $34.9 million for potential cash distributions by Cheniere Energy Partners, L.P. ("Cheniere Partners"); and, $5.3 million for other restricted purposes.

We amended the 2008 Convertible Loans, as described below, which amendment allowed us to transfer $65.2 million from the TUA reserve account early in order to utilize the funds for commercial opportunities. As a result of this amendment, we reclassified approximately $65.2 million from restricted cash and cash equivalents to unrestricted cash and cash equivalents as of June 30, 2009.

As described below in further detail by business segment and for corporate and other activities, we believe that we will have sufficient cash and cash equivalents to operate our business and pursue our business strategies over the next several years.

LNG Receiving Terminal Business

Cheniere Partners

Our ownership interest in the Sabine Pass LNG receiving terminal is held through Cheniere Partners. In 2007, Cheniere Partners completed a public offering of 15,525,000 Cheniere Partners common units. As a result of this public offering, our combined general partner and limited partner ownership interests in Cheniere Partners was reduced to approximately 90.6%. Cheniere Partners owns a 100% interest in Sabine Pass LNG, which is constructing and operating the Sabine Pass LNG receiving terminal.

For each calendar year, Cheniere Partners is expected to make annual distributions of $1.70 per unit on all outstanding common units, subordinated units and related distributions to its general partner. We anticipate receiving $18.5 million per year out of the total $44.9 million of annual common unit distributions. We anticipate receiving $235.8 million per year from distributions to the subordinated and general partner units, of which we own 100%.

Cheniere Partners relies on the receipt of operating revenues from Sabine Pass LNG's TUAs to fund quarterly cash distributions to us and other unitholders. Sabine Pass LNG is not permitted under the Sabine Pass Indenture to make cash distributions to Cheniere Partners if it does not satisfy a fixed charge coverage ratio test of 2:1, calculated as required in the Sabine Pass Indenture as well as other conditions. If the coverage test is not met, we may not receive distributions. The fixed charge coverage ratio test was met for the periods through June 30, 2009 and distributions in the amount of $149.3 million have been made during the first six months of 2009, from Sabine Pass LNG to Cheniere Partners. Cheniere Partners utilized the cash received from Sabine Pass LNG to pay expenses and make distributions. Cheniere Partners has made distributions of $140.3 million in the aggregate to us and its other unitholders during the first six months of 2009.

A distribution reserve account was established from proceeds of Cheniere Partners' initial public offering to pay distributions to the common unitholders and general partner to the extent needed for Cheniere Partners to make such distributions with funds other than unrestricted cash through the distributions for the second quarter of 2009, after which the funds remaining in the account are to be returned to us. Sabine Pass LNG began making distributions from unrestricted cash in February 2009 and Cheniere Partners expects to continue making its distributions from its unrestricted cash balances rather than from the distribution reserve account.

As of July 15, 2009, there was $34.9 million in the distribution reserve account. We expect that, after accounting for interest earned in the account, approximately $35 million of remaining funds will be distributed to us in August 2009 pursuant to the terms of Cheniere Partners' partnership agreement.

We also expect to receive approximately $19 million of annual management and service fees from Sabine Pass LNG and Cheniere Partners pursuant to existing agreements.

Sabine Pass LNG Receiving Terminal

Our estimated aggregate construction, commissioning and operating cost budget through the achievement of full operability of the Sabine Pass LNG receiving terminal (with approximately 4.0 Bcf/d of total sendout capacity and five LNG storage tanks with approximately 16.8 Bcf of aggregate storage capacity) is approximately $1,559 million, excluding financing costs. Of this amount, approximately $1,499 million of construction and commissioning costs had been incurred as of June 30, 2009. Our remaining construction, commissioning and operating costs are anticipated to be funded from Sabine Pass LNG's available cash.

The entire approximately 4.0 Bcf/d of regasification capacity that will be available at the Sabine Pass LNG receiving terminal upon completion of construction has been fully reserved under three long-term TUAs, under which Sabine Pass LNG's customers are required to pay fixed monthly fees, whether or not they use the terminal. Because we achieved commercial operability of the Sabine Pass LNG receiving terminal in September 2008, capacity reservation fee TUA payments will be made by our third-party customers as follows:

• Total has reserved approximately 1.0 Bcf/d of regasification capacity and has agreed to make monthly capacity payments to Sabine Pass LNG aggregating approximately $125 million per year for 20 years that commenced April 1, 2009. Total, S.A. has guaranteed Total's obligations under its TUA up to $2.5 billion, subject to certain exceptions; and

• Chevron has reserved approximately 1.0 Bcf/d of regasification capacity and has agreed to make monthly capacity payments to Sabine Pass LNG aggregating approximately $125 million per year for 20 years that commenced July 1, 2009. Chevron Corporation has guaranteed Chevron's obligations under its TUA up to 80% of the fees payable by Chevron.

Our wholly-owned subsidiary, Cheniere Marketing, has reserved the remaining 2.0 Bcf/d of regasification capacity, and is entitled to use any capacity not utilized by Total and Chevron. Cheniere Marketing has agreed to make capacity payments aggregating approximately $250 million per year for the period from January 2009 through at least the third quarter of 2028. Cheniere has guaranteed Cheniere Marketing's obligations under its TUA.

Under each of these TUAs, Sabine Pass LNG is entitled to retain 2% of the LNG delivered for the customer's account, which Sabine Pass LNG will use primarily as fuel for revaporation and self-generated power at the Sabine Pass LNG receiving terminal.

Each of Total and Chevron previously paid us $20.0 million in nonrefundable advance capacity reservation fees, which will be amortized over a 10-year period as a reduction of each customer's regasification capacity fees payable under its TUA.

Other LNG Receiving Terminals

We have a 30% limited partner interest in Freeport LNG. In October 2008, January 2009 and April 2009, Freeport LNG made distributions to us of $4.8 million, $3.9 million and $2.7 million, respectively. We expect to continue to receive distributions from Freeport LNG as they are approved by the board of directors of Freeport LNG's general partner.

We will contemplate making final investment decisions to complete construction of our Corpus Christi LNG receiving terminal project and to commence construction of our Creole Trail LNG receiving terminal project upon, among other things, entering into acceptable commercial arrangements and entering into acceptable financing arrangements for the applicable project. We do not expect to spend significant funds on these projects until we have entered into acceptable commercial arrangements and acceptable financing arrangements.

Natural Gas Pipeline Business

As of June 30, 2009, Phase 1 of the Creole Trail Pipeline, consisting of 94 miles of natural gas pipeline, had been constructed and placed into commercial operations. Expenditures incurred for the construction of the Creole Trail Pipeline through June 30, 2009 were approximately $554 million, including accrued liabilities. We believe we will have sufficient cash and cash equivalents to operate Phase 1 of our Creole Trail Pipeline for the next several years.

We will contemplate making a final investment decision to construct Phase 2 of the Creole Trail Pipeline, the Corpus Christi Pipeline, the Cheniere Southern Trail Pipeline and the Burgos Hub Project upon, among other things, receiving all required authorizations to construct and operate the applicable pipeline (and storage facility in the case of Burgos Hub), to the extent not already obtained, and entering into acceptable commercial arrangements and acceptable financing arrangements for the applicable project. We do not expect to spend significant funds on these projects until we have entered into acceptable commercial arrangements and acceptable financing arrangements.

LNG and Natural Gas Marketing Business

Our wholly-owned subsidiary, Cheniere Marketing, is developing an LNG and natural gas marketing business. Its principal asset is a TUA at the Sabine Pass LNG receiving terminal. Our LNG and natural gas marketing business segment is seeking to develop a portfolio of long-term, short-term, and spot LNG purchase agreements.

Cheniere Marketing will utilize the funds in the TUA reserve account, distributions from Cheniere Partners and operating cash flows to pay its TUA obligation. We believe that we have sufficient cash and cash equivalents to fund our LNG and natural gas marketing business for the next several years.

Corporate and Other Activities

We are required to maintain corporate general and administrative functions to serve our business activities described above. We believe that we will have sufficient cash and cash equivalents to fund these functions over the next several years.

Although our focus is primarily on the development of LNG-related businesses, we continue to be involved to a limited extent in oil and gas exploration, development and exploration activities in the shallow waters of the Gulf of Mexico. We do not anticipate significant cash expenditures related to these activities and expect our cash inflows from oil and natural gas production to decrease as reserves are produced.

Sources and Uses of Cash

The following table (in thousands) and the explanatory paragraphs following the
table summarize the sources and uses of our cash and cash equivalents for the
six months ended June 30, 2009 and 2008. The table presents capital expenditures
on a cash basis; therefore, these amounts differ from the amounts of capital
expenditures, including accruals, that are referred to elsewhere in this
document.

                                                                    Six Months Ended June 30,
                                                                   2009                 2008
                                                                                    (As adjusted)
SOURCES OF CASH AND CASH EQUIVALENTS
Use of restricted cash and cash equivalents                    $     149,479       $       410,470
Use of restricted treasury securities                                      -                21,717
Proceeds from debt                                                         -                95,000
Other                                                                  4,286                   241
Total sources of cash and cash equivalents                           153,765               527,428

USES OF CASH AND CASH EQUIVALENTS
LNG terminal and pipeline construction-in-process                    (81,175 )            (440,782 )
Debt repurchases                                                     (30,030 )                   -
Operating cash flow                                                  (27,643 )            (107,162 )
Purchase of LNG for commissioning, net of amounts
transferred to LNG terminal construction-in- process                 (14,184 )             (65,416 )
Advances under long-term contracts, net of transfers to
construction-in-process                                                    -                (5,118 )
Debt issuance costs                                                      (33 )             (12,503 )
Distributions to non-controlling interest holders                    (13,196 )             (13,196 )
Purchase of treasury shares                                              (80 )              (4,406 )
Purchases of intangible and fixed assets, net of sales                  (140 )              (3,542 )
Other                                                                   (530 )              (9,218 )
Total uses of cash and cash equivalents                             (167,011 )            (661,343 )

NET DECREASE IN CASH AND CASH EQUIVALENTS                            (13,246 )            (133,915 )
CASH AND CASH EQUIVALENTS-beginning of period                        102,192               296,530
CASH AND CASH EQUIVALENTS-end of period                        $      88,946       $       162,615

Use of restricted cash and cash equivalents

In November 2006, Sabine Pass LNG issued an aggregate principal amount of $2,032.0 million of Senior Secured Notes consisting of $550.0 million of 7¼% Senior Secured Notes due 2013 (the "2013 Notes") and $1,482.0 million of 7½% Senior Secured Notes due 2016 (the "2016 Notes" and collectively with the 2013 Notes, the "Senior Notes"). Under the indenture governing the Senior Notes, a portion of the proceeds from the Senior Notes is required to be used for scheduled interest payments and to fund the cost to complete construction of the Sabine Pass LNG receiving terminal. Due to these restrictions imposed by the indenture, the proceeds are not presented as cash and cash equivalents, and therefore, when proceeds from the Senior Notes are used they are presented as a source of cash and cash equivalents. For the six months ended June 30, 2009, the $149.5 million use of restricted cash and cash equivalents was the result of obtaining access to use the $65.2 million of restricted cash and cash equivalents in the TUA reserve account and using restricted cash and cash equivalents to pay for scheduled interest payments and construction activities at the Sabine Pass LNG receiving terminal. For the six months ended June 30, 2008, the $410.5 million of restricted cash and cash equivalents were used primarily to pay for scheduled interest payments and construction activities at the Sabine Pass LNG receiving terminal.

LNG terminal and pipeline construction-in-process

Capital expenditures for our LNG receiving terminals and pipeline projects were $81.2 million and $440.8 million in the six months ended June 30, 2009 and 2008, respectively. The 81.6% decrease of LNG terminal and pipeline construction-in-process in the six months ended June 30, 2009 as compared to the six months ended June 30, 2008, resulted primarily from our completing construction of the initial phase of the Sabine Pass LNG receiving terminal, which commenced construction in the first quarter of 2005, and the Creole Trail Pipeline, which commenced initial construction in the second quarter of 2007.

Debt repurchases

Net cash used in debt repurchase was $30.0 million and zero in the six months ended June 30, 2009 and 2008, respectively. During the second quarter of 2009, we reduced long-term debt by exchanging a combination of $30.0 million cash and cash equivalents and 4.0 million common shares for $120.4 million aggregate principal amount of our Convertible Senior Unsecured Notes.

Operating cash flow

Net cash used in operations was $27.6 million and $107.2 million in the six months ended June 30, 2009 and 2008, respectively. Net cash used in operations in the six months ended June 30, 2009 and 2008 related primarily to the continued development of our LNG receiving terminals, natural gas pipelines and LNG and natural gas marketing business, offset by TUA payments received from Total and Chevron during the six months ended June 30, 2009.

Purchase of LNG for commissioning, net of amounts transferred to LNG terminal construction-in- process

In the six months ended June 30, 2009, we acquired and successfully unloaded an additional LNG commissioning cargo for the Sabine Pass LNG receiving terminal. As of June 30, 2008, we acquired LNG commissioning cargoes for the Sabine Pass LNG receiving terminal and successfully unloaded the LNG into the Sabine Pass LNG receiving terminal.

Distributions to non-controlling interest holders

During the six months ended June 30, 2009 and 2008 we made distributions of $13.2 million to non-controlling interest holders of Cheniere Partners.

Debt Agreements

The following table (in thousands) and the explanatory paragraphs following the
table summarize our various debt agreements as of June 30, 2009.

                                                                                                        Consolidated
                                                                                         Other            Cheniere
                                                Sabine           Cheniere Energy        Cheniere           Energy,
                                            Pass LNG, L.P.       Partners, L.P.       Energy, Inc.          Inc.
Long-term debt
Senior Notes                               $      2,215,500     $               -     $          -     $     2,215,500
2007 Term Loan                                            -                     -          400,000             400,000
2008 Convertible Loans                                    -                     -          276,959             276,959
Convertible Senior Unsecured Notes                        -                     -          204,630             204,630
Total long-term debt                              2,215,500                     -          881,589           3,097,089

Debt discount
Senior Notes (1)                                    (34,819 )                   -                -             (34,819 )
Convertible Senior Unsecured Notes (2)                    -                     -          (45,950 )           (45,950 )
Total debt discount                                 (34,819 )                   -          (45,950 )           (80,769 )

Long-term debt, net of discount            $      2,180,681     $               -     $    835,639     $     3,016,320

(1) In September 2008, Sabine Pass LNG issued an additional $183.5 million, par value, of 2016 Notes. The net proceeds from the additional issuance of the 2016 Notes were $145.0 million. The difference between the par value and the net proceeds is the debt discount, which will be amortized through the maturity of the 2016 Notes.

(2) We adopted FSP APB 14-1, effective as of January 1, 2009, which required us to record a debt discount on our Convertible Senior Unsecured Notes. The unamortized discount will be amortized through the maturity of the Convertible Senior Unsecured Notes.

Convertible Senior Unsecured Notes

In July 2005, we consummated a private offering of $325.0 million aggregate principal amount of Convertible Senior Unsecured Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). The notes bear interest at a rate of 2¼% per year. Interest on the notes is payable semi-annually in arrears February 1 and August 1 of each year. The notes are convertible at any time into our common stock under certain circumstances at an initial conversion rate of 28.2326 per $1,000 principal amount of the notes, which is equal to a conversion price of approximately $35.42 per share. As of June 30, 2009, no holders had elected to convert their notes. We may redeem some or all of the notes on or before August 1, 2012, for cash equal to 100% of the principal plus any accrued and unpaid interest if in the previous 10 trading days the volume-weighted average price of our common stock exceeds $53.13, subject to adjustment, for at least five consecutive trading days. In the event of such redemption, we will make an . . .