NextDecade's Rio Grande LNG is latest US export project to delay FID until 2021

Houston — A final investment decision on NextDecade's proposed Rio Grande LNG export facility in Brownsville, Texas, has been delayed until next year amid challenging market conditions, the developer said Monday.

In a statement, regulatory filing and accompanying investor presentation, the company disclosed that it has reduced its workforce by 18% since the beginning of the year and furloughed an additional 14% of staff this month to help give it the financial flexibility to operate through the downturn.

No update was provided to a previous target of beginning commercial exports as early as 2023. Startup will likely be later, however, given the new FID timing and the up to four years it takes to build a traditional large-scale US liquefaction facility. NextDecade shares rose sharply Monday, amid an overall jump in the equity market and its expectation that it will have more than sufficient cash to continue project development.

"We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities," NextDecade said. "It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our financial results for the remainder of fiscal year 2020 or beyond."

North American developers of liquefaction capacity were struggling before the coronavirus pandemic to secure sufficient commercial support to finance construction of their multi-billion dollar facilities. Those challenges have gotten more difficult since then as international LNG prices have plunged and demand has weakened.

Sempra Energy recently delayed FID on its proposed Port Arthur LNG facility in Texas to 2021, while Cheniere Energy suggested it may put off FID on its midscale liquefaction expansion at its facility near Corpus Christi until next year as well. Tellurian said recently it is "very difficult to predict" when it will be able to take FID on its Driftwood LNG project in Louisiana. In late March, Shell pulled out of its Lake Charles LNG joint venture with Energy Transfer in Louisiana.

To date, Shell's 20-year agreement to buy 2 million mt/year of supply from Rio Grande LNG is the only firm ofttake deal tied to the terminal that NextDecade has reached. NextDecade needs to sell another 9 million mt/year of supply under long-term contracts to achieve FID on two or three trains, the developer said. At full build-out, the total capacity of the facility would be 27 million mt/year. Exelon-backed Annova LNG's 6 million mt/year project and Texas LNG, expected to include 2 million mt/year of capacity in its first phase, also have been proposed to be built in Brownsville, in South Texas, though neither one has yet reached FID.

NextDecade finished the first quarter with $58.3 million of cash and cash equivalents, with no debt outstanding. It expects pre-FID development spending to average approximately $2 million per month going forward.

The job cuts, furloughs and other measures affecting full-time employees are designed to support its financial flexibility. The furloughs will remain in place until NextDecade has "better clarity on the COVID-19 pandemic's impact on the current global LNG market," the developer said.

Sector outlook

In addition, NextDecade's chief executive officer and certain other members of its executive team have voluntarily reduced their base salaries by 10% for the remainder of 2020. NextDecade and its construction contractor, Bechtel, have agreed to a limited scope of ongoing engineering work.

In a regulatory filing earlier this month, NextDecade warned investors that market disruptions from the coronavirus pandemic could further delay FID for Rio Grande LNG and harm the developer's ability to sustain its operations.

"The same, or greater, commercial challenges will be there waiting for everyone on the other side of all this, so pessimism around any LNG timeframe is pretty appropriate," said Michael Webber, managing partner of investment research firm Webber Research & Advisory. "Of all the greenfields trying to tread water for the next year or two, NextDecade would still be our favorite."