Mon, Jun 17 2024 17 June, 2024

Rio Grande LNG receives Gulf State investment, giving momentum to proposed expansion

The UAE’s Adnoc took a stake in Rio Grande LNG, a controversial gas export project currently under construction on Texas’ southern coast. Saudi Aramco is also reportedly considering an investment.

Main entrance of Adnoc's headquarters in Abu Dhabi (Photo: Adobe Stock/MarcoCuraba)

The United Arab Emirates’s state-owned oil company is investing in U.S. LNG, providing a jolt of momentum to the Rio Grande LNG project on Texas’ southern coast.

The Abu Dhabi National Oil Company (Adnoc) announced on May 20th that it was acquiring an 11.7 percent stake in NextDecade’s Rio Grande LNG project in Brownsville, Texas, a large LNG project that is at the early stages of construction. Adnoc’s stake in the first phase of the project covers the first three liquefaction trains, which reached a final investment decision last year. A second phase would add a fourth and fifth train, for which NextDecade has indicated that it intends to announce an FID later this year.

Adnoc’s acquisition also included a 20-year off-take agreement for the fourth train for 1.9 million tonnes per annum (mtpa), a move that in of itself would help push the project towards a greenlight. LNG projects typically try to sign up around 80 percent of their export capacity to long-term contracts with buyers before announcing a final investment decision.

The terms are on a free-on-board (FOB) basis at prices linked to Henry Hub, an arrangement in which the buyer takes control of the cargo at the terminal and is responsible for its transport and ultimate delivery to an end-user.

“We are delighted to partner with NextDecade on this world-class lower-carbon LNG project as it marks a significant milestone in ADNOC’s international growth strategy,” Musabbeh Al Kaabi, ADNOC’s Executive Director for Low Carbon Solutions and International Growth, said in a statement. “And provides us access to one of the world’s top LNG export markets.” It was Adnoc’s first LNG deal in the U.S.

Meanwhile, Adnoc’s regional rival, Saudi Aramco, is considering a major investment in either Rio Grande LNG or Port Arthur LNG, according to S&P Global. Aramco is weighing contracts “involving roughly one liquefaction train worth of capacity from Port Arthur and more than one-half train’s worth of capacity from the Rio Grande project,” S&P said.

Rio Grande is located at the southern edge of Texas near the border with Mexico, while Port Arthur is further north, closer to the border with Louisiana.

Rio Grande LNG Phase 1 is expected to come online in 2029.

The deal with Adnoc is well-timed for NextDecade, which recently disclosed that it is facing financial trouble. In a May 13th securities filling, the company said that it had doubts about its ability to continue as a “going concern,” a warning that it may not have enough cash to pay for its operations. The company had $46 million in cash on hand, plus another $26 million available from a revolving credit facility. 

But that preceded the acquisition. In the same filing, Nextdecade said it would “alleviate the going concern issue by obtaining sufficient funding through additional equity, equity-based or debt instruments or any other means and by managing certain operating and overhead costs.” Presumably, the investment from Adnoc would provide some financial breathing room, and more broadly, sends a strong signal that the project — and its proposed expansion — is moving forward.

Gas Outlook reported from Brownsville in early 2023, one of the few stretches of the Texas coast that is not inundated with oil and gas infrastructure. Opponents of the Rio Grande LNG continue to contest various permits in federal court, warning that the project endangers nearby communities with pollution and also threatens sensitive ecological habitat. But those legal challenges, which have delayed the project by several years, have ultimately not stopped construction from proceeding.

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