LEASES

During the years ended December 31, 2014, 2013 and 2012, we recognized rental expense for all operating leases of $19.1 million, $13.9 million and $12.9 million, respectively.

Future Annual Minimum Lease Payments

Future annual minimum lease payments, excluding inflationary adjustments, are as follows (in thousands):



Years Ending December 31,	Operating Leases (2)
2015	$	35,912
2016	97,367
2017	109,500
2018	101,742
2019	101,109
Thereafter (1)	296,813
Total	$	742,443


(1)	Includes certain lease option renewals as they are reasonably assured.

(2)

Operating leases primarily relate to LNG vessel time charters, land site and tug leases. Lease payments for Sabine Pass LNG’s tug boat lease represent its lease payment obligation and do not take into account the payments Sabine Pass LNG will receive from third-party TUA customers that effectively offset $16.3 million, or two-thirds, of Sabine Pass LNG’s lease payment obligations, as discussed below.

Land Site Leases

We recognized $3.0 million, $2.7 million and $2.3 million of LNG terminal operating expense on our Consolidated Statements of Operations in 2014, 2013 and 2012, respectively, under the following land site leases:

In January 2005, Sabine Pass LNG exercised its options and entered into three land leases for the site of the Sabine Pass LNG terminal. The leases have an initial term of 30 years, with options to renew for six 10-year extensions with similar terms as the initial term. In February 2005, two of the three leases were amended, thereby increasing the total acreage under lease to 853 acres. In July 2012, Sabine Pass LNG entered into an additional land lease, thereby increasing the total acreage under lease to 883 acres. The annual lease payments are adjusted for inflation every five years based on a consumer price index, as defined in the lease agreements.

In November 2011, Sabine Pass Liquefaction entered into a land lease of 80.7 acres to be used as the laydown area during the construction of the Sabine Pass Liquefaction Project. The lease has an initial term of 5 years, with options to renew for five 1-year extensions with similar terms as the initial term. In December 2011, Sabine Pass Liquefaction entered into a land lease of 80.6 acres to be used for the site of the Sabine Pass Liquefaction Project. The lease has an initial term of 30 years, with options to renew for six 10-year extensions with similar terms as the initial term. The annual lease payment is adjusted for inflation every 5 years based on a consumer price index, as defined in the lease agreement.

In January 2013, Corpus Christi Liquefaction entered into a land lease of 110 acres to be used as the laydown area during the construction of the Corpus Christi Liquefaction Project. The lease has an initial term of one year, eleven months, with an option to renew for an additional period of four years, eleven months with similar terms as the initial term.

Tug Boat Agreements

In the second quarter of 2009, Sabine Pass Tug Services, LLC (“Tug Services”), Cheniere Partners’ wholly owned subsidiary, entered into a Marine Services Agreement (the “Tug Agreement”) for the use of tug boats and marine services for the Sabine Pass LNG terminal. The term of the Tug Agreement commenced in January 2008 for a period of 10 years, with an option to renew two additional, consecutive terms of 5 years each. We determined that the Tug Agreement contains a lease for the tugs specified in the Tug Agreement. In addition, we have concluded that the tug boat lease contained in the Tug Agreement is an operating lease, and as such, the equipment component of the Tug Agreement will be charged to expense over the term of the Tug Agreement as it becomes payable.

In the second quarter of 2009, Tug Services entered into a Tug Sharing Agreement with Sabine Pass LNG’s three TUA customers to provide their LNG cargo vessels with tug boat and marine services at the Sabine Pass LNG terminal and effectively offset the cost of the tug boat lease. The Tug Sharing Agreement provides for each of our customers to pay Tug Services an annual service fee.

LNG Vessel Time Charters

In June 2013, Cheniere Marketing entered into three LNG vessel leases with subsidiaries of two ship owners, Dynagas, Ltd. (“Dynagas”) and Teekay LNG Operating LLC (“Teekay”), for the purpose of securing shipping capacity for its SPA with Sabine Pass Liquefaction. The leases have an initial term of 5 years with the option to renew the lease with Dynagas for a 2-year extension with similar terms as the initial term. In accordance with accounting literature on determining whether an arrangement contains a lease, we determined that the LNG vessel leases are operating leases and, as such, the equipment component of the LNG vessel leases is charged to expense over the term of the LNG vessel leases as it becomes payable.

Cheniere Marketing expects to receive delivery of the vessel leased from Dynagas in June 2015 and the vessels leased from Teekay in January 2016 and June 2016, respectively.