Whitney Tilson’s Empire Financial is getting on the “fear” bandwagon with their latest presentation — here’s the intro for their latest pitch, which is an ad for a new energy-focused newsletter from Tilson:

“Urgent Broadcast for Retirees and Savers…

“November 15 “Exodus” Set to Wreak Havoc on Your Money

“Are Warren Buffett, Carl Icahn, and numerous other billionaires about to trigger an ECONOMIC NIGHTMARE? No less than $37 TRILLION in retirement savings is on the line.

“But make ONE simple money move today… and you could collect 400% gains from the fallout.”

The promo takes the form of a 60 Minutes-style newsmagazine segment, with Whitney Tilson being interviewed by Elaine Espinola, though, as with all these kinds of newsletter ads, she’s just a paid actor/model host — it’s an ad for the new high-end newsletter Tilson is launching called Energy Supercycle Investor, taking advantage of the potential opportunity caused by the strange situation we’re now experiencing in the energy markets. They’d like to charge $5,000 for this quarterly newsletter, which plans to focus on small-cap energy stocks, but, of course, nobody every pays the “list price,” so this is being offered at $2,000 per year (since it’s quarterly, that will tally up to $500 per newsletter issue).

This isn’t a brand-new sector focus for Tilson, I remember him being excited about the opportunity in BP a dozen years ago, when their Deepwater Horizon rig was fouling the Gulf of Mexico and investors panicked out of the stock… and earlier this year he followed Warren Buffett into Occidental Petroleum (OXY) as the Russian invasion of Ukraine caused turmoil in the energy markets.

It looks like he’s going to have two folks collaborating with him on this project, his colleague Enrique Abeyta at Empire and hedge fund manager Harris Kupperman, and they’re also using this to boost Kupperman’s own publication, offering a free trial for his Kuppy’s Event Driven Monitor newsletter (if that name sounds familiar, it’s probably because he’s been friendly with a lot of the Casey/Stansberry editors for years — I mostly remember him because he moved to Mongolia to take advantage of the opportunity there a decade ago in launching Mongolia Growth Group, which is still a public company (YAK.V in Canada), though of late it looks like the Mongolian property business has performed poorly and he has apparently given up on living on the frozen steppe… I guess we’ve come full circle, from their last press release it looks like Mongolia Growth Group is now earning money primarily by… publishing Kuppy’s Event Driven Monitor.)

Tilson says that he’ll be offering up a “Supercycle Portfolio” of energy stocks, including oil services companies and exploration and production companies, but he doesn’t throw out any clues about those particular picks that are in the portfolio at the launch, so we’ll focus on the one he does hint at as his favorite — the bait for subscribers is a special report called “400% Upside: The $4 Stock at the Center of the Energy Supercycle.”

So what is it? It’s a stock he calls “the next LNG powerhouse,” with the implication being that it will profit from the surging demand for liquefied natural gas in Europe as a partial replacement for the huge quantities of natural gas that Germany, Poland, Italy and so many others were accustomed to buying from Russia’s Gazprom… before those pipelines to Europe became Russia’s tool for retaliation against the West when much of the world stood with Ukraine.

Clues? This is what Tilson says:

“Once liquified, natural gas can be shipped and traded on the global market, serving Europe’s needs and relieving its dependence on Russian gas.

“In fact, Germany is fast-tracking the building of several LNG import facilities.

“A small firm we call ‘the next LNG powerhouse’ is set to feed this growing demand – and today you can get in on the ground floor.

“This company is building an integrated LNG business, the first of its kind in the U.S. That means it’ll control every aspect of the business.

“‘The next LNG powerhouse’ will drill for natural gas… funnel it through a pipeline to an LNG facility… then ship it out to the global markets at an absurdly lucrative 5 times premium.

“It’s secured all the critical permits. The Department of Energy and the Federal Energy Regulatory Commission are all on board.

“It’s contracted Bechtel – the builders of the Hoover Dam and about a third of all LNG facilities around the world – to build its LNG terminal.

“And it’s led by a man Forbes calls ‘one of the Founding Fathers of the LNG movement.'”

So who is this guy? More from Tilson:

“This man turned his last company into the second largest LNG exporter in the world… and he’s about to do it again.

“He’s building a MEGA-TERMINAL that’ll send 28 million tons of LNG around the world every year.”

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He also spitballs about the potential valuation of this company:

“According to Wall Street, Cheniere is worth $69 billion.

“I’m oversimplifying here, but that values every ton of LNG at about $1,500.

“Conversely, Wall Street estimates that “the next LNG powerhouse” is worth a little over $2 billion.

“And it’s going to export 28 million tons of LNG. Again, these tons are worth $1,500 apiece.

“That gives this tiny firm a potential future value of $43 billion.

“That’s 1,700% upside.

“Even if you factor in the costs to build the facilities, that leaves $10 billion of equity value.

“If these numbers work out, that’s a 400% gain on the stock.

“And you can get shares today for just $4 each.”

So… what’s the stock, and what’s the story? Well, coincidentally enough, just like with Tilson’s last great “$4 stock” opportunity… it’s already cheaper now, the price is down to about $3. This is another pitch for the emerging LNG developer Tellurian (TELL), founded by Charif Souki, who also started Cheniere many years ago.

(That last “$4 stock” pitch from Tilson, if you missed it, was his tease of a $4 “inflation fighter” that turned out to be Ginkgo Bioworks.)

Tellurian’s stock price dropped from about $4 to $3 this week, and it looks like the drop was mostly caused by reports that they’re withdrawing a debt offering — they need to raise a lot of money to build out their planned Driftwood Project, and part of that was supposed to come from some five-year notes they planned to sell, at what used to sound like a fairly steep price, an 11% coupon plus warrants, but apparently the “uncertain conditions in the high-yield market” meant they weren’t getting enough buyers at that price.

Will that delay the Driftwood Project further? Not necessarily, but it is important to note that these LNG projects are extremely long-term in nature — it takes years to build a liquefaction facility (where you compress the natural gas into LNG by chilling it, turning it into a liquid that can be shipped in special pressurized LNG tankers), and most of the production from those facilities is sold on extremely long-term contracts. And, of course, you have to have “gasification” facilities at the other end to turn it back into gas and connect into local pipelines for delivery to customers… some places have been relying on LNG for years and have a lot of import capacity, some, like Germany, have very little and are rushing to figure out how to build them.

The appeal of these projects is that they can earn some of the “spread” between cheap US natural gas prices and the typically much higher gas prices in other countries, primarily places like Italy, Germany, Japan, and South Korea where they have to import all of their natural gas. But the risk is that the spread varies a lot — it’s extremely high right now, because natural gas supplies from Russia are cut off, but by the time the LNG is being exported from the Driftwood Project in Louisiana in four or five (or more) years… well, nobody knows what that spread will be. It could be much lower if Russia makes nice again, or if Qatar subsidizes LNG for Europe to take market share… it could be higher if the energy crisis in Europe gets worse. I have no idea which way it will go.

Tellurian has been teased before, if you’re wondering — it’s run by Charif Souki, the guy who started Cheniere Energy, the biggest pure-play LNG company in the US (though he didn’t have the ability to predict how the natural gas market would evolve, either, Cheniere was initially planned as an LNG importer to supply the US with gas from Trinidad and Qatar and elsewhere). He was effectively forced out at Cheniere by Carl Icahn back in 2015, and pretty quickly moved on to build a competitor (and get mired in lawsuits for a good five years with his former employer, though I think those all cleared up a couple years ago). The stock was teased pretty aggressively by Dr. Kent Moors in 2018 and 2019, and back then the story was that they’d need $15 billion to get the Driftwood Project up and running, with planned shipments starting in 2023.

The compelling idea at Tellurian was that they wouldn’t just be a midstream company, converting natural gas to LNG and loading it on ships at the Driftwood terminal, but that they would also be vertically integrated, producing their own natural gas to extract more of the profit margin for themselves. That ought to be working fairly well right now, they did buy up quite a bit of Haynesville Shale property and production in Louisiana, not far from their planned Driftwood terminal, and they’ve continued to buy more production this year (acquiring Ensight for $125 million a few months ago, for example), but we’ve also gotten plenty of reminders over the years that these projects are hard to finance and take a long time. The Driftwood Project just started construction this summer, and they’re now saying that they think they can have their first LNG shipment by early 2026.

That Phase 1 development at Driftwood is “sold out”, and could end up generating massive profit margins if prices remain high when shipments begin — the deals with buyers are all at “market price” (based on the two big benchmark prices for LNG, JKM in Asia and TTF in Europe), so Tellurian’s eventual profits will depend on what the market price is in 2026 or 2030 or whatever year of output we’re talking about, but if the shipments were going out today the “netback margin” for Tellurian would be massive, since the international LNG buying prices in Asia and Europe are in some cases close to 10X the current US Henry Hub natural gas prices. If that continues, it’s a ludicrous windfall for Tellurian in a few years — though those current prices are extreme, they have really only been looking for JKM and TTF prices to be 2-3X as high as the US natural gas price, and if those kinds of premiums can hold that would be enough to justify building the LNG export plants.

The goal, per Tellurian’s latest investor presentation, is to get Phase 1 up and running and delivering LNG in 2026, and then to use the cash flow from Phase 1 (which is two plants, which are also sometimes called “LNG trains”) to finance the development of five more plants at Driftwood. If Asian LNG prices (the JKM benchmark) are at $14 when Phase 1 is up and running, Tellurian forecasts $4 billion in annual cash flow for themselves from Phase 1… though, as I noted, we don’t know what JKM prices will be in 2026 (import prices in Japan, for example, are at all-time highs now, above $20, but have been been both below $6 and above $15 in the past decade).

Will it work out? Well, that mostly depends on their ability to finance the construction of Phase 1, and Bechtel’s ability to deliver the first two plants on schedule, and what the prices are for LNG imports in Europe and Japan four years from now (or, if the construction is delayed further, perhaps later than that). They may even be able to recognize some of that profit margin before production really begins, particularly by using the futures market to “lock in” prices if the LNG prices remain ludicrously high in a few years, but they’d probably have to be a lot closer to the first shipment to be able to do that at any meaningful scale.

Investors are not always a patient lot, even with ideas that have appealing math built in, and in the case of Tellurian I imagine that’s probably because of a combination of high financing costs (and this week, some uncertainty about actually getting the financing), and uncertain future margins — the LNG market is phenomenal right now. In 2030, when Tellurian will probably still be paying debt service on building the first part of Driftwood? Maybe still phenomenal, maybe not.

I mostly see myself as having two goals here: First, to let you know what’s “real” behind the hype of these newsletter ads; and Second, to offer a splash of cold water in talking about some of the risk, mostly to counter the hype and give you a moment to think before you pull out your credit card.

So in the interests of that second mission, here’s a chart of how Tellurian’s stock price has done over the five-plus years that it has been public (there was a little trading stub before that, but February of 2017 is really when they had their IPO and raised their first real equity to start the Driftwood Project), compared to the price of LNG imports in Japan:

LNG is a great business to be in today. Will it still be great in five years? Maybe so, and I’d even probably tend to be an optimist these days because I think natural gas is likely to be the most desirable fossil fuel as the world continues to try to reduce air pollution and reduce coal consumption… but five years is a long time, and this project that has been aggressively promoted since 2017 is just now starting the first steps of a long construction process.

I do find Tellurian more appealing today than I did four or five years ago, not least because they’ve actually started construction, but it’s probably going to take more patience than is implied in the ads… and the fact that you’re investing in the very small equity stub of a massive and expensive capital project means that the value is likely to be volatile not just because the commodity itself is jumping around in price, but also because, as the shares are telling us this week, the cost of financing the $20-30 billion that they’ll probably end up spending on construction is getting ever more unpredictable as inflation wreaks havoc on interest rates. They say they only need $12 billion or so for Phase 1, and they’re not raising all of that money up front, Tellurian is the operator but won’t own all of the Driftwood Project and some capital is being contributed by partners (including future customers like Total), but they will have to borrow a bunch of money at some point pretty soon to pay their share — and the market was clearly worried this week when Tellurian indicated that it might not be easy to raise even $1 billion in debt at an affordable cost right now.

As was the case back in 2018 when I first looked at this stock, Tellurian seems mostly to be a levered play on future LNG spreads (the difference between US gas prices and European and Asian LNG import prices), and today both the cost of leverage and the nature of that future LNG price disparity are pretty unpredictable.

That’s just my take, though, and I don’t have a horse in this race — when it comes to your money, it’s your thinking and your risk assessment that matters: Ready to invest in the Driftwood Project with Tellurian? Think Souki will build something with great upside for investors? Or is the risk too much as you look out to 2026 and beyond? Have other favorite plays in the natural gas space? Let us know with a comment below. Thanks for reading!

Disclosure: Of the companies mentioned above, I own shares of Warren Buffett’s Berkshire Hathaway and a call option position on Ginkgo Bioworks. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.