The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, Jan 22 (Reuters Breakingviews) - Venture Global’s initial public offering is leaving port too soon. The liquefied natural gas company benefitted from breakneck growth in U.S. exports, putting it on the path to a hefty initial public offering. And yet on Wednesday it reduced the valuation it’s seeking by over 40%. Amid a contract dispute and huge investment in the volatile industry, even the company’s sought-after $65 billion debut looks poorly timed.

The last few years have been good. Gas production rose 40% over the past decade, according to the U.S. Energy Information Administration. That reduced domestic prices, but not supply. Natural gas is a byproduct of the fracking process used by oil drillers. As long as the oil market is stable, the gas must flow.

Exporters like Venture Global can ship it to markets where prices are higher. U.S. gas is expected to cost a bit over $3 per million BTUs this year, the EIA reckons. Assume it costs double that to liquefy and ship it. Asian markets are paying nearly $14, making for a profitable trade. Indeed, Venture Global earned $1.2 billion in the first nine months of 2024. It shows no sign of slowing down, either, spending over $10 billion as part of a bid to up its output over ten-fold. Rivals are expanding too.

Yet while supply might be strong, demand is less clear. Venture Global’s 2024 earnings were down some 80% from the same period in 2023. Energy markets are notoriously volatile: investment today could run into a market slump tomorrow. That’s part of what makes valuing Venture Global so difficult. Assume projects coming online to roughly triple production similarly triple earnings to about 90 cents per share, then the high end of its proposed price range of $27 per share represents a multiple of 30 times. Slower-growing rival Cheniere Energy LNG.N trades at 22 times estimated earnings.

Moreover, Venture Global is in a major dispute. BP BP.L, Shell SHEL.L and other companies say that gas sold on the spot market from its Calcasieu Pass facility should have been shipped to them under an agreed long-term contract. Venture says the facility isn’t fully completed, so it doesn’t have to. The spurned customers are seeking over $4 billion in arbitration, no small sum.

Maybe arbitration will work out. The market more generally is moving towards spot sales. But firms like Venture Global are fundamentally middle men. Angering big buyers could lead to them turning to someone else, during a time of high uncertainty for the larger market. It’s a poor moment for a gigantic entry into the public markets.

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CONTEXT NEWS

Venture Global said on Jan. 22 it had reduced the valuation it is seeking in its initial public offering. The liquefied natural gas exporter now hopes to achieve a market capitalization of $65 billion, down from an initial target of $110 billion.

The company is seeking to sell 70 million shares at a price from $23 to $27 each. It had previously sought to sell 50 million shares at $40 to $46.

Venture Global is in arbitration with customers over shipments from its facility at Calcasieu Pass which were sold on the spot market. BP, Shell and other companies are seeking over $4 billion in combined damages.

Venture Global earned $1.2 billion in the first three quarters of the year, or 23 cents per share on a pro forma basis. It earned $6.3 billion in the same period last year.

(Editing by Jonathan Guilford and Pranav Kiran)

((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com))