Saudi Aramco considers US LNG deals with Rio Grande, Port Arthur export projects: sources

Saudi Aramco is considering major investments in two US LNG projects as part of a broader push by the state-owned oil giant to build a global LNG business, according to sources familiar with the matter.

US LNG developers' talks with Aramco are centered on Sempra's Port Arthur LNG terminal and NextDecade's Rio Grande LNG terminal, both in Texas, the sources said.

The volumes being discussed are substantial, sources said, 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.

People with knowledge of the matter described Aramco's pursuit of a "big" US LNG offtake position as part of its "aggressive" strategy toward developing an LNG portfolio business, with potential equity positions also being considered.

"It is not final yet and they are still looking at this closely," one of several sources said.

Global LNG entry

Aramco announced its entry to the global LNG business in September 2023 through its acquisition of a minority stake worth $500 million in EIG-managed MidOcean Energy, which in 2024 has completed acquisitions of stakes of LNG projects in Australia and Peru.

The annual report of Saudi Aramco for 2023 highlighted its investment into MidOcean prominently and commented that Aramco expects strong demand-led growth for LNG. The company said it plans to develop an integrated global LNG business and is pursuing corresponding direct investment and joint venture opportunities.

"Globally, we're interested in offtake and trading," Chief Financial Officer Ziad al-Murshed told analysts during a May 7 earnings call. "We've elected to build this portfolio gradually because, again, we're focused on the quality of the investments as opposed to a big move from Day 1. We realized that this requires a lot of learning along the way. And so, we're proceeding carefully."

Aramco is looking at other LNG projects beyond the US, including in Africa, sources said.

Aramco declined to comment.

Sempra declined to comment on commercial matters related to projects under development. NextDecade also declined to comment.

Coveted counterparty

Sempra and NextDecade reached final investment decisions on the first phases of their projects in 2023, after announcing large equity deals that diluted the developers' ownership of their projects, while keeping them as operators.

Securing a coveted deep-pocketed counterparty in Aramco would provide a major boost in getting the expansion projects over the line to construction. Aramco committing to long-term deals for US LNG supply would also mark a significant shift in the energy trade relationship between the US and Saudi Arabia, while underscoring how American shale gas is transforming global energy markets.

The timeline for finalizing potential deals was unclear.

The two-train second phase of Port Arthur would double the 13.5 million mt/year production capacity of the under-construction project, which Sempra expects to start commercial operations in 2027. The Port Arthur developer has not announced any binding long-term deals tied to the proposed expansion, but it has a preliminary deal for 200,000 mt/year.

NextDecade's phase 2 project also involves adding two trains to Rio Grande, which would bring the terminal's production capacity to about 27 million mt/year at full construction.

In a separate transaction announced May 20, the UAE's ADNOC and NextDecade struck a deal for the state-owned energy company to take an equity stake in the first phase of Rio Grande and enter into a 20-year LNG offtake agreement for 1.9 million mt/year from the project's proposed Train 4. The deal also gives ADNOC an option for an equity stake in the expansion trains.

There was no indication of a connection between the ADNOC deal and a potential investment by Aramco in Rio Grande. The companies in 2018 announced a framework agreement to explore opportunities in the natural gas and LNG sectors.

In 2019, Aramco struck a preliminary agreement with Sempra calling for Aramco to take a 25% stake in Port Arthur LNG and offtake 5 million mt/year from the project. But that deal ultimately expired without being finalized by mutual agreement amid the pandemic and extreme volatility upending global gas markets.

Market dynamics have changed dramatically since then. Russia's 2022 invasion of Ukraine led to a surge of demand for US LNG supply and increased competition between US developers vying to advance their projects to construction.

Global LNG prices have declined significantly from record 2022 levels. But the talks underway come as spot LNG for delivery into North Asia has been trading around $12/MMBtu for the first time since late 2023.

Platts, part of S&P Global Commodity Insights, assessed the July JKM at $12.188/MMBtu May 30, up 12.7 cents/MMBtu on the day.

US projects

At the same time, long-term contracting announcements tied to US LNG projects in 2024 have slowed dramatically following the White House decision in late January to suspend issuing key LNG export permits.

NextDecade, which has all the necessary permits in hand for its expansions, is targeting an FID on Train 4 by the end of 2024 and an FID on Train 5 in 2025.

The second phase of Sempra's Port Arthur LNG project needs one of the approvals subject to the permitting freeze, which is expected to remain in place until early 2025. The permitting suspension has created significant uncertainty for projects that need the approvals but have yet to reach FID.

Sempra has stopped referring to a timeline for commercially sanctioning the second stage of Port Arthur since the US permitting suspension was announced.

In a March interview, Sempra Infrastructure's president of LNG, Martin Hupka, declined to comment about any commercial discussions but said the company would continue to develop the second phase of Port Arthur despite the permitting hold and remained confident in the commercial attractiveness of the project.

Asked during the interview about the reason that Sempra's previous efforts to finalize a deal with Aramco fell through, the executive cited "global events."

"That global event didn't stop the ultimate FID of Port Arthur," Hupka said. "There are always different courses that development of these projects takes, so we always look at the longer term of: Is this is the right project? And when we look at phase 2, we say yes, this is the right project. This project will launch."