Based on 3Q earnings, Venture Global reported that they have 67 mtpa of LNG capacity in operation or under construction and that number will reach 100 mtpa by 2030. Additionally, they have secured offtake agreements for 45 mtpa already. These agreements are mostly long-term supply and purchase agreements (SPAs) lasting a duration of 20 years. LNG demand is poised to grow over the next 2 decades, primarily in Asia, due to energy consumption growth in many developing economies, coal-to-gas switching and decarbonization, and also due to growth in AI data centre power consumption. My understanding is that they make money from liquefaction fees that are specified in these SPAs, priced at around US$5-7/mmbtu. Hence, this serves as a source of long-term stable revenues.
Of course, the company is currently taking on large amounts of debt to finance the construction of the various natural gas liquefaction terminals. Additionally, it is currently embroiled in legal issues with Shell and BP, who are some of the off-takers of its LNG cargoes. They won the case against Shell but lost the case against BP. Venture Global has been accused by these companies of not abiding by the terms of these SPAs when they sold their commissioning cargoes for one of their projects on the spot market for large profits during the period of high LNG prices brought about by the Russia-Ukraine war. I am unsure of what is the long-term impact of these legal battles, but I think it should not affect the long-term business case.
I am relatively optimistic about the future performance of $VG as it will soon grow to a size comparable to Cheniere and will also exceed it in LNG export capacity. The LNG market seems to be growing healthily. As long as they can find buyers for their capacity and execute on their projects, I would think that the stock price can easily hit 15-18 dollars within the next 1-2 years. I am curious if there are any risks that I may have missed out in my current analysis?
Posted by ahappysgporean
4 Comments
Hi. I’m still looking for that guy who agreed to compensate my $VG loses (50%). Please, show up.
Long almost 1700 shares. Bought this stock at $6.14. If you believe the need for energy is going to continue to grow (it is) and if you believe in VG ability to execute (they’ve shown they can) then this is a great opportunity to get in. The reason for the stock being so low is likely due to the uncertainty of the litigation and their debt to equity ratio. Of course, if they can become the leader in LNG then these points are moot.
I started a position at $20 and was able to average down and have modest gains on one of the rallies. Obviously they are huge risk especially given their litigation and other issues. Tempted to take another flyer. Natural gas tends to be something that fluctuates into being worthless depending on the cycle, but being able to liquify and transport it to where there is a market can alter that scenario and make it so there’s more often a place to sell it even in lean times.
If one believes that electricity will be in rising demand for the foreseeable future (I do, and that’s irrespective of data centers, humans crave electricity no matter what) NG is the cleanest of the dirty fossil fuels and can be turned into electricity now, not in 20+ years like fanciful nuclear.
There are likely some institutional and qualified investors who are holding bags from the $25 IPO, and these whales sometimes have a will to drive a price back up regardless of other factors. So your theory of potential rally still to come might not be far fetched. Of course this is a derivative of a derivative of natural gas, which is already deep end of the risk pool already.
Why is the “LNG market seems to be growing healthily?” The elephant in the room is China LNG demand which crashed after Trump trade war. China is now building pipes from Russia which is way cheaper than LNG as well as increasing domestic supply. TTF, the benchmark for EU LNG, is now at multi year lows of $9 mmbtu. This means that US LNG buys US natural gas at $4 (if it stays as cheap) has liquefaction costs of $1.5 and needs to recoup facility capital costs of another $2. That leaves profit margins extremely low and risky to another crash in LNG prices.
Europe has also divested from natural gas as it is building out renewables, leaving a question of future demand. Since LNG will be used primarily for power, it competes with renewables. The reason why EU is forced to buy US LNG is due to a shock in Russian supply, not organic growth in demand. Why should a poor emerging market pay much more expensive natural gas when it can power using much cheaper renewables? Reminder that the poor EM do not have tariffs on Chinese solar and wind nor the delusional aversion to renewables power due to not being regulatorily captured by US oil and gas special interests.
New LNG supply from Qatar will add another supply shock to the market, why would US LNG be able to compete with Qatar LNG, especially when geopolitically the US is not at a great position with the number one consumption growth country, China?