What happened
Shares of liquified natural gas (LNG) exporter Tellurian (TELL 7.47%) rose as much as 20.8% today, before settling into a 17.1% gain as of 1:30 ET.
Tellurian has been in the news recently amid soaring natural gas prices, especially in Europe, due to Russia's invasion of Ukraine. Last week, President Joe Biden announced a deal to supply more LNG to Europe over the next decade, boosting sentiment for Tellurian and its peers.
On the heels of that deal, Tellurian's stock received an upgrade today from analysts at Credit Suisse.
So what
Analyst Spiro Dounis boosted his price target on Tellurian from $5.50 to $8 on Friday, citing the recent U.S.-Europe deal and several other company-specific factors. After today's rise, shares are currently trading around $6.20 per share.
Dounis also pointed to the fact that Tellurian just commenced construction of the Driftwood LNG plant, a huge endeavor that will cost billions and won't come online until 2026. Tellurian recently gave the go-ahead to begin construction on this massive plant, even though it still needs to complete financing for the first leg, which will cost over $12 billion and support 11 million tons of LNG per year. If Tellurian proceeds with the full buildout, it would cost $30 billion to produce 27.6 million tons per year.
There had been some questions around Tellurian's ability to obtain financing. That's because while the company has already contracted 9 million tons per year from several customers, those were 10-year agreements, not the 20-year agreements used to finance previous U.S. LNG terminals.
Those contracts are tied to spot LNG prices, so amid soaring natural gas prices in Europe and the new U.S. supply agreement, Dounis appears to think final financing of the project is more likely, and that construction might even be fast-tracked if new off-take deals come through.
Image source: Getty Images.
Now what
The United States is blessed with lots of low-cost natural gas, which is needed in Europe and Asia as these economies look to keep the lights on while also transitioning away from coal. It seems the Russia-Ukraine conflict will jump-start U.S.-based LNG projects as international buyers turn away from Russian supplies.
For interested investors, it should be noted that Tellurian likely won't make positive earnings until Driftwood is up and running. The company has some upstream natural gas operations, but it is still operating in the red, and will undergo huge costs to build out the project. So Tellurian stock is somewhat risky, but has lots of upside if things go right. That being said, the war is currently making future profits much more likely. If an energy "super-cycle" is in fact happening, it's a natural gas name to watch.
