Shares of LNG export company Venture Global (VG 7.87%) rallied 37.9% in May, according to data from S&P Global Market Intelligence.
Venture Global reported earnings during the quarter, but actually missed estimates. Still, management's forward commentary on the start-up of its second LNG export facility encouraged investors. In addition, the company later received a key permit allowing it to begin construction of its third LNG export facility.
With the stock and natural gas prices having moved lower in April on fears over "Liberation Day" and its economic consequences, Venture Global was therefore able to bounce back with a vengeance in May.
Venture Global looks ahead
In its first-quarter earnings report, Venture Global reported 105% revenue growth, to $2.9 billion, and 94% adjusted EBITDA growth, to $1.3 billion. While those seem like huge growth numbers, the company is just beginning to ramp up its first LNG facility, Calcasieu Pass, and even those impressive growth figures missed expectations.
Yet the stock rallied anyway after earnings, as management also said that its second facility, Plaquemines, would begin to ship "full" pre-commercial volumes by the end of this year, which was earlier than expected.
Venture Global has been criticized for shipping volumes to customers other than those who signed long-term supply agreements with the company before the price of LNG spiked after Russia's invasion of Ukraine. Venture Global is delaying the start of official "commercial" production as long as it can, so that it can feed these "pre-commercial" volumes to other customers on the spot market, and thereby take in much higher prices.
Unfortunately, the lower contracted prices will start to kick in this quarter. Calcasieu Pass officially started "commercial" shipments in April, so the revenue and profit seen in the first quarter ended in March should actually decrease, at least on a per-unit basis.
However, Plaquemines' commercial contracts don't start until 2027, so the earlier shipments beginning toward the end of this year during the "formal commissioning phase" will mean higher prices for those shipments for longer. Hence, why the earlier start to full shipments for the Plaquemines plant was such as positive.
More good news then came on May 23, when Venture Global was formally granted a final permit from the Federal Energy Regulatory Commission to begin work on its third LNG facility, Calcasieu Pass 2, or CP2. CEO Mike Sabel said the company would immediately get to work on the new facility, and aims for CP2 to begin delivering LNG to customers in 2027.
Image source: Getty Images.
Venture Global could have massive revenue, but also massive costs ahead
Between the three facilities, Venture global will have 50 mt/year of nameplate capacity, which translates to about 2.4 billion 1,000 cubic feet units per year. At the current average LNG export rate of about $8.88 per 1,000 cubic feet, that's about $21.3 billion in revenue potential for Venture Global, once everything is up and running.
Of course, there is still some uncertainty as to the price VG will be able to get for its LNG, given that it signed commercial agreements for some of that capacity a long time ago at lower LNG export prices. Moreover, the CP2 facility will be very expensive, costing an estimated $28 billion.
Nevertheless, investors seemed enthused by the growth outlook, with Venture Global's big bounce in May continuing into June. Despite the strong month, VG's stock is still well below its $25 January IPO price, so investors may want to dig into this story.
