The world will need more energy as more people join the global middle class and consume more energy. The U.S. Energy Information Administration (IEA) forecasts global energy demand will increase by 47% by 2050. Many people may not realize it, but natural gas is a cleaner and less carbon-intensive energy source than coal.
While energy and climate is a divisive issue with many people having differing opinions on the best path forward for our energy grid, there is a growing realization that natural gas is going to have to play an important role in the planet's energy mix, even if it is as a bridge fuel to more renewable energy. For example, the European Union recently proposed new rules that would classify natural gas as green energy.
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The U.S. has an abundance of natural gas against a future backdrop in which the world needs more of it. One company that could benefit from this reevaluation over the coming years is the U.S.-based Tellurian (TELL 2.12%). Tellurian is in the early stages of building a liquefied natural gas (LNG) export facility in Louisiana that should one day have the capacity to export over 27 million metric tons of LNG annually if and when it is completed. The company has also built a pipeline to support this facility and has interests in 78 producing wells on its land in Louisiana. Essentially, Tellurian is seeking to become a one-stop shop for exporting LNG internationally eventually. Natural gas prices in the U.S. are currently around $4.77 per metric million British Thermal Unit (mmBTU), whereas the IEA expects natural gas to average $26 per million BTU in Europe and $27 per million BTU in Asia in 2022. Of course, a lot can change over the next few years by the time Tellurian is fully up and running. Still, this price differential highlights a potentially lucrative outlook for Tellurian. The company views China, India, Europe, and Southeast Asia as key geographies where LNG demand will continue to heat up.
High risk/high reward
To be clear, this is a high-risk investment as Tellurian is still building this facility and will need a lot more funding to complete it, which puts shareholders at risk of dilution and unforeseen complications or cost overruns in construction. But if the company can execute on this and eventually get LNG on ships to European and Asian markets, Tellurian investors could reap some serious rewards.
A key reason investors can feel good about this vision coming to fruition is chairman Charif Souki. This type of operation is a daunting undertaking, but Souki has done it before. Before starting Tellurian, he was the founder and visionary behind Cheniere Energy, a natural gas infrastructure company engaged in transporting LNG that has grown into a $32 billion company.
In a recent video blog, Souki said that construction of the facility will begin in April 2022 and that the company has access to enough capital for the first year of construction. On the one hand, it's great that it has enough money to finish a year of construction, but investors must also be mindful of the risks of this investment as there is still a big gap from here to completion.
Is Tellurian a buy?
The importance of natural gas is increasing along with the growing need for energy worldwide over the long term, and I view Tellurian as a beneficiary of both trends. I like the track record of Tellurian's founder and chairman, and even if natural gas prices in Europe and Asia were to decrease substantially from here over time, there is still a lot of profit to be made. I think Tellurian is a buy and worthy of a manageable allocation in the portfolios of risk-tolerant investors.
