In a move that sent ripples through the energy sector, Citi analysts have dramatically lowered their price target for Venture Global by 40%, highlighting the ongoing weakness in LNG prices as a major headwind for the company’s growth prospects. This adjustment, from $35 to $21 per share, underscores the challenges facing liquefied natural gas producers amid a global market flooded with supply and subdued demand.
The downgrade comes at a pivotal time for Venture Global, the U.S.-based LNG giant known for its aggressive expansion in Louisiana. With projects like Calcasieu Pass and Plaquemines LNG pushing production capacities, the firm has positioned itself as a key player in America’s energy export boom. However, Citi’s report warns that persistently weak LNG prices could extend the sector’s overhang well into 2025, pressuring valuations across the board.
Citi’s Bold Downgrade Signals Deeper Troubles for Venture Global
Citi’s decision to slash the price target for Venture Global wasn’t made lightly. Analysts led by Edward Westlake pointed to a confluence of factors eroding the company’s near-term outlook. In their latest note to investors, they emphasized that spot LNG prices in Asia and Europe—key markets for U.S. exports—have hovered around $10 per million British thermal units (MMBtu), a far cry from the peaks above $70 seen during the 2022 energy crisis triggered by Russia’s invasion of Ukraine.
“The prolonged weakness in LNG prices is creating a structural challenge for high-cost producers like Venture Global,” Westlake wrote in the report. This sentiment echoes broader concerns in the energy sector, where overbuilt capacity from new facilities in Qatar, the U.S., and Australia is outpacing demand growth. Venture Global, which reported commissioning its first LNG train at Plaquemines in late 2023, now faces the reality of selling output into a buyer’s market.
To illustrate the severity, Citi compared Venture Global’s situation to peers like Cheniere Energy. While Cheniere benefits from long-term contracts covering about 90% of its output, Venture Global’s reliance on spot sales—estimated at over 50% of its volumes—exposes it to volatility. This mismatch, according to the analysts, justifies the 40% cut, bringing the implied market cap down to around $18 billion from previous estimates.
Dissecting the LNG Price Plunge and Its Ripple Effects
The core issue driving Citi’s reassessment lies in the dramatic fall of LNG prices. Global LNG trade volumes reached a record 404 million tonnes in 2023, up 4% from the prior year, per data from Shell’s LNG Outlook. Yet, prices have decoupled from this growth, with Henry Hub natural gas futures— a benchmark for U.S. LNG—trading below $3/MMBtu in recent months, compared to $8 averages in 2022.
Several factors are at play. First, mild European winters in 2023 reduced storage withdrawals, leaving inventories plump heading into 2024. Second, new supply waves, including Venture Global’s own ramp-ups, have flooded the Atlantic Basin. The International Energy Agency (IEA) forecasts that global LNG capacity will expand by 40% to 600 million tonnes per annum by 2028, but demand growth in Asia—driven by China’s economic recovery—may lag at just 25% over the same period.
For Venture Global, this translates to squeezed margins. The company’s Calcasieu Pass facility, fully operational since 2022, was designed to produce 10 million tonnes annually. However, with spot prices in Europe dipping to $8.50/MMBtu in Q1 2024, revenues per cargo have plummeted. A typical LNG cargo of 160,000 cubic meters, once fetching $5-7 million in profits, now yields margins closer to breakeven for high-cost exporters.
Industry experts have weighed in on the implications. “LNG prices are in a classic oversupply scenario, and without a demand shock like another geopolitical flare-up, we could see sub-$10 levels persist,” said Amy Myers Jaffe, a energy geopolitics expert at New York University. Her comments align with Citi’s view that this price target reduction reflects not just Venture Global’s woes but a sector-wide recalibration.
Venture Global’s Expansion Ambitions Under Scrutiny
Despite the headwinds, Venture Global has been one of the most ambitious players in the energy sector. Founded in 2013 by executives from ExxonMobil and other majors, the company has secured over 70 million tonnes per annum in export approvals from the Federal Energy Regulatory Commission (FERC). Its Delta LNG project, still in early development, aims to add another 20 million tonnes by 2027.
Recent milestones include the startup of Plaquemines LNG’s first train in December 2023, with full capacity of 20 million tonnes expected by 2026. Venture Global’s CEO, Mike Sabel, touted these achievements in a February 2024 earnings call, stating, “We’re on track to become one of the world’s largest LNG producers, capitalizing on America’s abundant resources.” Yet, Citi’s report questions the timeline, noting potential delays from supply chain issues and regulatory hurdles under the Biden administration’s paused approvals for new exports.
Financially, Venture Global remains privately held, backed by investors like EIG Global Energy Partners and Stonepeak. The company raised $1.7 billion in debt financing for Plaquemines in 2022, but with LNG prices weak, cash flows are under pressure. Citi estimates that Venture Global’s free cash flow could turn negative in 2024 if spot prices don’t rebound, forcing reliance on equity raises or contract renegotiations.
Comparatively, the downgrade mirrors actions against other LNG firms. In March 2024, JPMorgan cut its target for Tellurian by 25%, citing similar market dynamics. This trend highlights how Citi‘s analysis is part of a broader narrative of caution in the energy sector.
Investor Sentiment Shifts as Energy Sector Faces Uncertainty
The market’s reaction to Citi’s price target slash was swift. While Venture Global isn’t publicly traded, shares in related ETFs like the United States Natural Gas Fund (UNG) dipped 3% on the day of the report’s release. Broader indices, such as the S&P 500 Energy Sector, have underperformed the market by 5% year-to-date, reflecting investor jitters over commodity prices.
Analysts from other firms offered mixed views. Goldman Sachs maintained a more optimistic stance, predicting a LNG price recovery to $12/MMBtu by late 2024 on seasonal demand spikes. However, they acknowledged risks from Europe’s pivot to renewables, which could cap long-term upside. “Venture Global’s cost structure gives it an edge over Middle Eastern rivals, but near-term volatility remains high,” noted a Goldman report.
Stakeholders in the energy sector are closely watching regulatory developments. The U.S. Department of Energy’s recent pause on new LNG export permits to non-free trade agreement countries—announced in January 2024—adds another layer of uncertainty. Environmental groups argue that unchecked expansion exacerbates climate change, while industry lobbyists, including the American Petroleum Institute, push for streamlined approvals to maintain U.S. leadership in global energy.
For Venture Global’s partners, the downgrade raises questions about offtake agreements. The company has locked in deals with buyers like Shell and BP, but disputes over cargo deliveries have led to arbitration claims totaling over $1 billion. Resolving these could bolster confidence, but prolonged legal battles might deter future investments.
Outlook: Navigating LNG Market Turbulence Ahead
Looking forward, the path for Venture Global and the energy sector hinges on several variables. Citi projects that if LNG prices stabilize above $11/MMBtu through 2025, the company’s projects could generate $2-3 billion in annual EBITDA by 2026. However, a prolonged slump below $9 could necessitate project deferrals, potentially impacting 10-15% of planned capacity expansions.
Geopolitical factors offer some hope. Escalating tensions in the Middle East or renewed European gas shortages could spike demand, benefiting U.S. exporters. The IEA anticipates global LNG demand to hit 500 million tonnes by 2025, with Asia accounting for 60% of growth. Venture Global’s strategic location on the Gulf Coast positions it well to capture this, provided it navigates financing and regulatory mazes.
Investors should monitor upcoming catalysts, including the company’s Q2 2024 production updates and any FERC decisions on Delta LNG. As Citi concludes in its report, “While Venture Global’s long-term story remains compelling, the current price target reflects a more tempered path amid LNG prices weakness.” For the energy sector, this episode serves as a reminder of the volatile interplay between supply, demand, and global events, urging a balanced approach to growth in an era of energy transition.
In the coming months, stakeholders will look to Venture Global’s operational execution and market adaptations to weather the storm. Whether this downgrade marks a bottom or a harbinger of deeper cuts depends on how quickly the LNG market rebalances.
