Tellurian (TELL 7.71%) has tanked in 2023. Shares of the liquefied natural gas (LNG) company have fallen over 50%, woefully underperforming the market (the S&P 500 has rallied nearly 25%). Several factors have weighed on the energy company, including lower natural gas prices and rising interest rates.

While Tellurian is having a down year, the energy stock has a potentially massive catalyst on the horizon. Here's a look at whether that upside potential makes it a screaming bargain or a value trap.

A needle-moving project

Tellurian is working toward one goal. The company is developing the Driftwood LNG facility in Lake Charles, LA. The LNG terminal would have the capacity to export 27.6 million tons of LNG annually. The company has already started construction of the facility. The first phase would have two LNG plants and 11 million tons of LNG export capacity. It could start producing LNG by the end of 2026.

Phase one will cost the company about $14.5 billion. However, that could turn into a very lucrative investment. Tellurian estimates that the first phase could generate about $4.4 billion in annual operating cash flow before land lease and interest expenses. That would give it the cash flow to fund phase two. Once fully developed, Driftwood could produce $11 billion in operating cash flow before land lease and interest expenses.

Driftwood would certainly move the needle for Tellurian. The company currently has an enterprise value of less than $850 million. While it won't reap all of Driftwood's future profits, even a minority interest in the LNG facility would be a huge moneymaker.

There's just one problem

The issue with Tellurian is it doesn't have the money to fund Driftwood. The company ended the third quarter with $1.3 billion in total assets, including $59.3 million in cash. That leaves it with a massive funding gap. The company is looking for partners to help finance 55% of the equity needed to build Driftwood's first phase.

One issue with this is that Tellurian isn't the only company seeking equity partners to help fund an LNG development. For example, midstream giant Energy Transfer (ET 0.12%) is working on a competing LNG export project located in Lake Charles, LA, aptly named Lake Charles LNG. While it hasn't started construction on its project, it has secured customers for a large portion of its proposed LNG capacity. That has helped reduce the project's risk, making it more attractive to potential equity investors.

On the other hand, several of Tellurian's customers canceled their capacity contracts because it wanted to find an equity partner that needed LNG liquefaction capacity. While that might make the project appealing to a large energy company with natural gas it wants to export, it's not attractive to a financial investor like a private equity fund or other midstream company, limiting its partnership opportunities.

Another issue with Tellurian's project is that interest rates have soared over the past two years. That will make debt funding even more expensive for the project. While debt costs will have also risen for competing projects like Energy Transfer's Lake Charles LNG, its rival has a competitive advantage. Energy Transfer has a strong investment-grade credit rating, which gives it greater access to lower cost and more flexible financing for its projects. Meanwhile, financing Lake Charles LNG is easier because Energy Transfer has signed significant capacity contracts, giving it visibility into future cash flows. With Driftwood canceling contracts, it will be more difficult for Tellurian to secure loans for its project.

Lower priced but still much too risky

Tellurian has taken a tumble this year because lower natural gas prices and rising interest rates could impact its ability to complete its massive Driftwood project. There's a real risk the company could run out of money before it finishes Driftwood, given that it still needs an equity partner. While finding a funding partner and eventually completing the project could give the stock rocket fuel to rally, it's too risky for most investors.

A better option would be to consider rival Energy Transfer. The company has a diversified midstream business that generates lots of cash. That gives it the money to invest in needle-moving projects like Lake Charles LNG while also returning substantial cash to investors through its 9%-yielding distribution. Add in its strong balance sheet, and it's a much lower-risk energy stock.