What happened
Shares of LNG export start-up NextDecade (NEXT 0.89%) have been skyrocketing over the past two days. As of 12:28 p.m. EDT today, shares are up 15%, which puts the stock up an incredible 68% after yesterday's giant 45% move higher.
So what
The past two days' gains are pretty nice for anyone who owns shares of NextDecade. But what's frustrating for many investors is that there isn't any clear news to underpin the move higher. The company hasn't issued any press releases, filed any disclosures to the Securities and Exchange Commission, or otherwise shared any updates on the status of its business.
It will be years before NextDecade is exporting LNG. Image source: Getty Images.
And when it comes to NextDecade's business, investors should remember that it's still a development-stage start-up. The company doesn't have any assets that generate meaningful revenue, and it's not expected to reach an FID -- final investment decision -- on its Rio Grande LNG export facility until 2021.
Now what
The oil and -- to a lesser extent -- natural gas industry remains in turmoil, with the coronavirus pandemic cratering global oil demand and demand for LNG around the world. For NextDecade, that has had serious implications, since many of its targeted customers are the vertically integrated oil and gas majors that have operations around the world and the resources to move LNG from the U.S. to import markets in Asia and Europe.
As a result, the company's shares are still down by half from the 12-month high, as the company runs the risk of running out of money before it can even break ground on Rio Grande, much less actually start delivering LNG. Moreover, the foundation of NextDecade's business plan is access to natural gas from the Permian Basin, which the company says it can get for next to nothing.
The 2020 oil crash has had serious implications for the economics of shale, and a protracted downturn could hinder NextDecade's access to this cheap gas on its current timeline. The company has secured enough cash to cover corporate expenses through the next year, and that bodes well for giving management enough time to adapt to a changing landscape and wait out a recovery.
But investors should acknowledge that the past two days' run-up isn't based on changes on the ground but changes in sentiment. Those gains could prove fleeting if sentiment turns back the other way. The real payoff for NextDecade investors won't happen for several more years, assuming management can get Rio Grande funded and built. But that also comes with the risk of losing everything if it doesn't come to fruition.
