NextDecade signs another LNG supply deal with Chinese company

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NextDecade (NASDAQ:NEXT) said Wednesday it signed a 20-year deal to supply liquefied natural gas to China's Guangdong Energy from the planned Rio Grande LNG export project in Texas.

Under the agreement, Guangdong Energy will purchase 1M metric tons/year of LNG from Rio Grande LNG Train 1, which NextDecade (NEXT) expects to start commercial operations as early as 2026.

NextDecade (NEXT) expects to make a positive final investment decision on as many as three trains of Rio Grande LNG in H2 2022, assuming the achievement of further LNG contracting and financing.

On Tuesday, NextDecade (NEXT) announced a deal to sell 1M tons/year of LNG to China Gas under a 20-year contract.

Comments

[Stop LNG]

Seriously need to fact-check 07-06-2022 story "NextDecade signs another LNG supply deal with Chinese company," Seeking Alpha.

NextDecade originally reported this deal with Guangdon on 03-24-2022 when the deal was "Guangdong up to 1.5 mtpa, to be finalized 2nd Quarter 2022" (www.businesswire.com/...).

Since then, NextDecade has floated the Guangdon 1.5 mtpa as part of the escalating demand for its LNG to FERC in a FERC eLibrary document as a reason FERC should extend the deadline for it to start producing LNG forward from 11-22-2026 to 11-22-2028 (elibrary.ferc.gov/...).

And in its June 2022 Corporate Presentation which says "RGLNG volumes sold have increased 4.75 mtpa in less than 6 weeks" (Slide 9, www.next-decade.com/...

Even Nasdaq got it wrong: "To the upside, NextDecade (NEXT) was 0.7% higher late in Wednesday trading, recovering from a 6.5% midday decline, after the company said it has signed a 20-year sale and purchase agreement with the Guangdong Energy Group for 1 million tons per year of liquefied natural gas from its Rio Grande LNG export facility in Brownsville, Texas." ("Energy Sector Update for 07/06/2022: FTI,EQNR,NEXT,OIS," Nasdaq, 07-06-2022, www.nasdaq.com/...

NextDecade's 07-06-2022 announcement says "Guangdong Energy Group will purchase approximately 1.0 million tonnes per annum (“MTPA”) of LNG . . . . Guangdong Energy Group has the right to purchase an additional 0.5 MTPA of LNG from RGLNG." (www.businesswire.com/...). Indicating no commitment on Guangdong's part to exercise its right to purchase an additional 0.5 mtpa within any specified time frame.

Odds are that NextDecade is happy with how this has played out and will take no action to correct any positive but inaccurate impressions about its prospects.

John Young, MS (Psychology), MSW (Social Work), Retired
San Benito TX
Active member of Save RGV (aka Save RGV from LNG) since May 2014 (https://www.savergv.org/, www.facebook.com/saveRGVfromLNG)
Registered with FERC as an Intervenor opposed to:
1) The originally paired Rio Grande LNG and Rio Bravo Pipeline projects on 05-25-2016 (elibrary.ferc.gov/...);
2) Enbridge's Rio Bravo Pipeline Company's Rio Bravo Pipeline project on 06-26-2020 (elibrary.ferc.gov/...); and
3) Rio Grande LNG's application for a Limited Amendment on 11-22-2021 (elibrary.ferc.gov/...).

[Stop LNG]

NextDecade's biggest challenge in making its initial FID and initiating the construction of its first two or three of five planned LNG liquefaction production trains, each capable of producing 5.87 mtpa of LNG up to 27 mtpa total, is Enbridge's Rio Bravo Pipeline that's to provide the feedgas that's to be transformed into LNG.

Initially, the Rio Grande LNG and the Rio Bravo Pipeline were both NextDecade projects, receiving a combo FERC permit to build and operate at my local Port of Brownsville TX on 11-22-2019. However, towards the end of 2019, NextDecade found itself unable to adequately push both projects forward at the same time.

Towards the end of 2019, NextDecade therefore signed a Memorandum of Understanding (MOU) with Enbridge for the two of them to work together 50/50 to develop the Rio Bravo Pipeline "and other pipelines in the area."

Finding itself unable to do its 50%, NextDecade sold its Rio Bravo Pipeline to Enbridge in February 2020. The deal included Enbridge's right to sell the pipeline project back to NextDecade for no more than $23 million dollars if NextDecade failed to make FID on the Rio Grande LNG project by 12-31-2023.

Unfortunately for NextDecade, back on 06-16-2020, Enbridge asked FERC to administratively approve some design changes to the Rio Bravo Pipeline engineering design originally approved by FERC back on 20-29-2019 ("Rio Bravo Pipeline Company, LLC submits its Abbreviated Application for an Amendment to the Certificate of Public Convenience and Necessity and for Related Authorizations for its Rio Bravo Pipeline." elibrary.ferc.gov/...

Apparently, Enbridge failed to provide FERC with the information it promised but failed to provide to FERC "in early 2021" ("Letter requesting Rio Bravo Pipeline Company, LLC to file a response to environmental information request within 30 days to assist in FERC's analysis of the application under CP16-455 et al.," 05-02-2022, elibrary.ferc.gov/... Enbridge has now re-engaged with FERC regarding its Limited Modified Application to change the design of its Rio Bravo Pipeline and has provided FERC with information FERC is apparently still processing.

The problem for NextDecade is that it can't reasonably make any FID on any LNG liquefaction production trains until it has a reasonable expectation that Enbridge will construct at least Line 1 of its dual line Rio Bravo Pipeline project in time to provide the feedgas it needs for its Rio Grande LNG Train 1 circa "as early as 2024."

Even if FERC and Enbridge agreed on a redesign of the pipeline today, the information Enbridge recently supplied to FERC indicates that Enbridge doesn't expect to submit a revised plan for the pipeline to cross the Arroyo Colorado followed by USACE approval of the revised plan in 2023. In addition, Enbridge doesn't plan to submit its application for its significant compressor station redesign to TCEQ until 2023.

2023 is a little late for Enbridge to get these two items settled if it's to get Rio Bravo Line 1 completed and able to provide feedgass to Rio Bravo Train 1 by as early as 2022. The two permitting projects involved could even lapse over into 2024.

The FERC eLibrary link to the 73-page document containing this information is elibrary.ferc.gov/... That will take you to the document, but to open the document you will have to download it as a zip file (unless FERC has fixed the glitch by the time you use the link).

Can NextDecade really arrange the financing it needs to make a ~$7.5 billion dollar lump-sum payment to its EPC partner Bechtel to start construction on Rio Grande LNG Train 1 before a) FERC approves Enbridge's pipeline design modification request, b) USACE approves Enbridge's plan for its pipeline to cross the Arroyo Colorado, and c) TCEQ approves Enbridge's significant redesign of the Compressor station that's to move the feedgas through the pipeline to Rio Grande LNG's Train 1?

All of which is a much bigger problem for NextDecade than for Enbridge, which has the option to sell the pipeline project back to NextDecade if NextDecade fails to make FID by 12-31-2023.

Perhaps this is the main reason Rio Grande LNG has asked FERC to extend its deadline for the commercial production of LNG from 11-22-2026 forward to 11-22-2028?

After all, 2028 is also a more reasonable target for NextDecade's NEXT Carbon Solutions to get the CCS UIC Class VI Injection Well it needs all permitted and up and running than is 2024.

NextDecade was originally supposed to get its paired Rio Grande LNG and Rio Bravo Pipeline projects up and running to take advantage of an expected surge in the global demand for US LNG starting in 2020. To be a good long-term investment, it will need to remain commercially operational and profitable for 30 or more years.

So far it's floated and shed a Pelican Bay LNG project, a Galveston Bay LNG Project, and a Inisfree FSRU project, has sold its Rio Bravo Pipeline Project, and has created a NEXT Carbons Solutions project to pair with its Rio Grande LNG project -- to rebrand itself as a green energy company accelerating the path to a Net Zero future for the world.

NextDecade has additional problems it has to overcome to start exporting LNG, but the Rio Bravo Pipeline seems its biggest problem it most urgently needs to resolve if its ever to export any LNG.

At age 80, I fully expect to outlive it.

John Young, MS (Psychology), MSW (Social Work), Retired
San Benito TX

Active member of Save RGV (aka Save RGV from LNG) since May 2014 (https://www.savergv.org/, www.facebook.com/saveRGVfromLNG)

Registered with FERC as an Intervenor opposed to:
1) The originally paired Rio Grande LNG and Rio Bravo Pipeline projects on 05-25-2016 (elibrary.ferc.gov/...);
2) Enbridge's Rio Bravo Pipeline Company's Rio Bravo Pipeline project on 06-26-2020 (elibrary.ferc.gov/...); and
3) Rio Grande LNG's application for a Limited Amendment on 11-22-2021 (elibrary.ferc.gov/...).