Shares of natural gas exporter Tellurian (TELL +0.00%) rose 8.2% in Monday's trading. There was no company-specific news driving that move; it appeared to be largely due to an increase in natural gas prices as weather grew colder and geopolitical instability continued to intensify.
NYSEMKT: TELL
Key Data Points
Natural gas prices rise
While natural gas prices were only up by about 0.7% as of the close of trading Monday, they had been up by as much as 4% earlier in the session. According to Reuters, liquified natural gas plants saw "record amounts" of gas flowing to export stations last week. In December, 14.7 billion cubic feet per day have been flowing to the seven U.S. LNG export terminals, up from a record 14.3 billion cubic feet per day in November.
That uptick in demand appears to be partially seasonal -- colder weather is driving up demand for natural gas to heat homes and generate electricity.
In addition, prices are experiencing upward pressure due to events on the geopolitical front. The Iran-backed Houthi army in Yemen is currently attacking cargo ships attempting to go through the Bab-el-Mandeb strait between Yemen and Djibouti on their way to the Red Sea and the Suez Canal. That has onlookers concerned about risks to the oil and gas tankers that pass through the strait. Attacks on them could reduce global supply. In addition, as ships looking to avoid that danger reroute around the Horn of Africa to go from the Middle East to Europe, the costs and time of shipping increase significantly. In fact, oil giant BP (BP 4.02%) just announced Monday that it was suspending shipments through the Red Sea for now.
Tellurian would directly benefit from higher natural gas prices, as it's not just an export terminal company -- it also owns natural gas producing assets in the U.S. Because of lower natural gas prices this summer, Tellurian actually reported an operating loss from its upstream production segment in the third quarter. Needless to say, for the company, higher natural gas prices would be especially beneficial.
Of course, the main asset for Tellurian is its yet-to-be-constructed Driftwood LNG plant, which has been plagued with delays due to the company's inability to get financing for it, resulting in canceled contracts. The question of whether and when it will be able to obtain some sort of financing for the $14 billion phase I construction dwarfs in importance any day-to-day movements in natural gas prices, except to the extent that higher prices could spur investors to put their money behind Driftwood.
Tellurian is too speculative
If the last two years have taught investors anything, it's that investing in companies that will inevitably need more financing in the future is risky. That goes both for money-losing companies and for companies dependent on large hard assets that will cost billions.
In the wake of the rapid rise in interest rates since early 2022, the once-promising Driftwood plant is in limbo, and Tellurian's stock price has fallen from about $9 before the pandemic and $6 in the aftermath of Russia's invasion of Ukraine to just around $0.75 today. In fact, its ongoing losses and inability to find financing on palatable terms spurred the company to include a warning about its ability to operate as a going concern within 12 months in its latest quarterly report. The company also replaced founder Charif Souki as chairman of the board earlier this month, and stated that he will no longer have any managerial responsibilities. However, Souki remains on the board.
Given all these uncertainties, Tellurian stock remains appropriate only for those willing to risk letting their investments go to zero. For this investor, there are much better risk-reward opportunities in the natural gas space.
