NextDecade delays Rio Grande LNG FID

US LNG project developer NextDecade has delayed the financial investment decision on its 27 mtpa Rio Grande LNG project to 2021.

The decision came about as a response to the COVID-19 pandemic effects on the current liquefied natural gas market conditions.

However, the long-term fundamentals of the global LNG market and the Permian and Eagle Ford producing basins that will supply Rio Grande LNG have not changed.

NextDecade continues to progress LNG opportunities with a number of prospective LNG customers.

Currently, the project has a 2 million tonnes per annum (mtpa), 20-year sale and purchase agreement with Shell. In addition, NextDecade believes it can achieve FID with an additional 9 mtpa of RGLNG capacity sold under long-term contracts.

“Our balance sheet is strong, we have no debt outstanding, and the long-term fundamentals for our Rio Grande LNG project remain firmly intact”, said Matt Schatzman, NextDecade’s chairman and CEO. “This solid foundation, together with our sustained regulatory, engineering and commercial progress, positions the company and our Rio Grande LNG project extremely well for when global market conditions improve.”

The Rio Grande LNG project has progressed on its regulatory journey through the first quarter of 2020.

The project is currently shovel ready the company noted in its quarterly report.

To remind, NextDecade inked a couple of contracts with Bechtel for the engineering, procurement, and construction (EPC) of the project with a $9.5 billion price tag. Earlier this year, the two companies agreed to extend the price validity of the EPC deals to July 31, 2020.

In its latest, report, NextDecade noted it is continuing the engineering and procurement activities for the project with Bechtel.

Bechtel completed the initial engineering and procurement work (LNTP-1) at the end of December 2019. Additionally, at the direction of NextDecade, began further engineering and procurement work (LNTP-2) on January 1, 2020.

Bechtel wrapped up the LNTP-2 work in April 2020 and engineering is now 16 percent done.

During LNTP-1 and LNTP-2, NextDecade and Bechtel finished all pre-FID engineering and procurement work. This will enable the placement of major equipment orders and the award of subcontracts immediately following FID.

In addition, the two companies have agreed to a limited scope of ongoing work (LNTP-3). This will provide for continued engineering progress for Rio Grande LNG.

NextDecade said it has pieced together its financial puzzle to ensure operations through to the end of 2021.

As of March 31, 2020, NextDecade had approximately $58 million in cash. Current assets less accounts payable and accrued liabilities totaled approximately $47 million. NextDecade has no debt outstanding.

In 2020, NextDecade expects to pay or accrue $72 million for pre-FID development activities in support of Rio Grande LNG. Approximately $46 million of these costs were paid or accrued in the first quarter of 2020.

In order to preserve its pre-FID liquidity NextDecade decreased its full-time headcount by 18 percent since December 31, 2019. Additionally, in May this year, the company furloughed 14 percent of its full-time headcount until it has better clarity on the COVID-19 pandemic’s impact on the current global LNG market.

The company’s CEO and certain members of the executive team have taken voluntary 10 per cent pay cuts for the remainder of 2020.

Over the next months, the company will reduce its office space under lease and defer additional information technology spending until it reaches FID.

The company believes these measures will ensure that it can sustain pre-FID development activities through year-end 2021. Beginning in the second quarter of 2020, NextDecade expects pre-FID development spending to average just over $2 million per month.

NextDecade believes that the measures taken to manage costs will not negatively affect Rio Grande LNG project.