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NextDecade revises timing of investment decision on Rio Grande LNG terminal

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NextDecade revises timing of investment decision on Rio Grande LNG terminal

NextDecade Corp. delayed by as many as three months the date when it expects to make a final investment decision on its proposed Rio Grande LNG export project in Brownsville, Texas, according to a revised time line in an Aug. 13 investor presentation on the developer's website.

The up-to-27-million-tonne-per-annum terminal on the Gulf of Mexico is among a handful of U.S. natural gas liquefaction projects watched by the market as indicators of what the global supply picture will look like during the early to mid-2020s.

NextDecade notched its first offtake contract when it announced in April a 20-year agreement with Royal Dutch Shell PLC for 2 mtpa of LNG. At the time, it maintained its expectation of a final investment decision, or FID, on up to three liquefaction trains, representing a total capacity of about 13.5 mtpa, by the end of the third quarter in September. In May, it tweaked its guidance on the FID to as early as the end of the third quarter. Its new presentation said a decision whether to advance the project would come in the fourth quarter, which ends in December.

"We do not expect this to impact the startup date of Rio Grande LNG," spokeswoman Toni Beck said in an email.

NextDecade is in ongoing commercial talks with potential LNG buyers to secure sufficient contracts to reach FID, according to the company's presentation. The company expected to receive its Federal Energy Regulatory Commission certificate later this quarter, and it has targeted a 2023 startup.

With the U.S. responsible for much of the new liquefaction capacity growth worldwide and China responsible for much of the new LNG demand growth, developers of the second wave of American LNG export facilities have courted Chinese buyers for long-term contracts to support the projects. But the trade war between the two countries has effectively cut off those prospects for now. No spot U.S. LNG cargoes have been delivered to China since March, and counterparties in China are waiting for a resolution before signing long-term deals.

Developers have been looking to end users elsewhere in Asia and in Europe, as well as to global commodity traders that are expanding LNG portfolios, to pick up the slack in the meantime.

NextDecade has been pitching its proximity to stable supplies of cheap feedgas from the Permian and other shale basins, as well as its willingness to offer flexibility in pricing mechanisms used for contracts. Three-quarters of the Shell offtake agreement will be indexed to Brent, with the rest indexed to U.S. gas prices, including Henry Hub.

Traditionally, LNG offtake agreements were indexed to the global crude benchmark. Cheniere Energy Inc., the biggest U.S. exporter of LNG, has shown a preference for Henry Hub-linked contracts, while Tellurian Inc., a second-wave export developer like NextDecade, has been pursuing contracts tied to Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia.

LNG netbacks to the U.S. Henry Hub from premium international markets have decreased dramatically this year. While Chinese demand has picked up in recent months from levels earlier in the year, demand in Japan remains weaker than normal because of increased nuclear use.

Rio Grande LNG is one of three LNG export projects actively being pursued at the underutilized Brownsville port. Texas LNG LLC's Brownsville project and the Exelon Corp.-backed Annova LNG project are the other two.

Harry Weber is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.