What happened
Shares of Tellurian (TELL -1.50%) fell as much as 17.7% on Tuesday, although shares had recovered to just a 7.3% decline as of 3:38 p.m. ET.
Investors can probably chalk up today's decline to a reversal of last week's tremendous gains, following the announcement of a U.S.-European agreement in principle to supply Europe with more liquified natural gas (LNG) through 2030. That agreement was made in response to Russia's invasion of Ukraine, and Europe's desire to wean itself off Russian oil.
However, on Tuesday, it was reported that Russia is now more open to peace talks. Therefore, stocks that benefited from tensions are reversing course. This is despite a positive announcement from the company today.
So what
On Tuesday, Tellurian announced that it had begun construction of its Driftwood LNG plant in Lake Charles, Louisiana. Tellurian was founded by Chairman Charif Souki, who also founded Cheniere Energy, which counts two working U.S. LNG plants and some pipelines as assets. Souki left Cheniere in 2015 after a difference of opinion with activist investor Carl Icahn.
LNG terminals take a huge amount of capital and time to construct. At Cheniere, Souki had wanted to build more LNG terminals instead of paying out cash to shareholders, and that is exactly what he's now doing at Tellurian. In light of recent geopolitical tensions that may cut off Russian supplies from the Western world, that looks prescient.
Tellurian is an early-stage company constructed in a similar way to Cheniere, although it has some natural gas production assets as well as pipelines in addition to its planned LNG terminal. Still, most of Tellurian's future will be determined by the Driftwood plant, which will have an initial capacity of 11 million tons of LNG per year. As of today, 9 million tons had been contracted -- enough to begin construction. However, Driftwood could have up to 27 million tons of capacity if the company pursues a full expansion of the plant. Last week's deal with Europe provided optimism that the company could sign more long-term contracts with European companies.
However, with potential peace talks on the table, investors are likely selling after last week's bump, as those contracts may not be as urgent.
Image source: Getty Images.
Now what
I'm not sure a potential peace or cease-fire between Russia and Ukraine will lead to more Russian gas flowing to Europe. A face-saving peace agreement probably won't lead to Russian President Vladimir Putin's ouster, or a sudden change in the West's current opinion of Russia's government. More likely than not, Europe will continue to secure more oil and natural gas from outside Russia. Therefore, this dip could be a buying opportunity.
Just be aware, Tellurian is an early-stage company that won't generate profits for several years. Management projects 2026 as the year it will begin selling LNG to customers, so it's a riskier LNG stock, as seen by today's move; however, that also means there's more potential upside in Tellurian, should demand for U.S. LNG rise beyond today's levels.
