Cleaner-burning natural gas has an important role to play in helping reduce global greenhouse gas emissions. It’s also affordable for energy consumers and abundant. These three primary attributes are driving governmental policies favoring liquefied natural gas (LNG) and contributing to rising global LNG demand.
Despite this growing demand for LNG, the LNG market remains extremely competitive – perhaps more today than ever before. To serve the growing and highly competitive global LNG market, we believe U.S. projects and non-U.S. projects – which have historically offered LNG indexed only to Henry Hub and only to oil, respectively – must do something different. LNG projects need to offer long-term LNG indexed to oil, Henry Hub, and potentially other indexes as the LNG market evolves over the coming years. We believe successful projects will be those that offer LNG on multiple indexes, providing customers with the flexibility they are seeking in today’s market.
LNG spot prices have been weak in 2019, but long-term LNG pricing is firm, reflecting the need for investment in new liquefaction capacity to alleviate the world’s growing LNG supply gap. Firm long-term LNG pricing also indicates that LNG customers are engaged, and they will enter into long-term LNG contracts to close the estimated 150 million ton per annum supply shortfall in 2025.
Over the past few years, it has become clear that incremental LNG from the U.S., will satisfy a large portion of the estimated 150 million ton per annum supply shortfall in 2025. We believe the next wave of U.S. LNG projects to reach a positive final investment decision (FID) will be those that can offer their customers superior pricing flexibility.
NextDecade’s strategy is to develop the largest LNG export solution linking Permian Basin associated gas to the global LNG market, creating value for producers, customers, and our stockholders. Our Rio Grande LNG project is strategically positioned to be a major demand center for Permian producers looking for gas flow assurance.
We are working with the Permian producers to create the LNG products our customers want while offering the Permian producers gas flow assurance and potentially higher netbacks by linking their gas production to global LNG pricing, including Brent.
NextDecade was the first U.S. LNG supplier to offer long-term LNG supply indexed to Brent. We also offer long-term LNG supply indexed to Henry Hub, Agua Dulce and Waha, and we are exploring other indexes, including the Japan-Korea Marker (JKM).
We believe our ability to offer multiple pricing options maximizes our total addressable market and will ensure success for our Rio Grande LNG project, making NextDecade a leader among the next wave of U.S. LNG suppliers.
Earlier this year, we announced that NextDecade and Shell signed a 20-year supply and purchase agreement (SPA) for 2 million tons per annum. The SPA volumes with Shell will be delivered Free on Board with approximately three-quarters of the volumes indexed to Brent and the remaining volumes indexed to U.S. gas prices, including Henry Hub.
NextDecade has an extensive pipeline of LNG customers, in various stages of negotiations, and we anticipate a final investment decision on Rio Grande LNG, on up to three trains, by the end of 2019.
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