LNG has historically been priced to an oil price marker. This is because until recently, LNG has been a point-to-point business - LNG was produced in one country and shipped under a 20-30 year contract to a single destination and the LNG tanker would shuffle back-and-forth between the two end points. This underpinned the project financing for construction of liquefaction projects.
LNG prices were then linked to oil as both the LNG producing nations and importers typically had no mature domestic gas market, and hence no price discovery for the gas, but for the importing country, the LNG would have displaced oil for power generation.
Since the genesis of North American LNG, US Gulf Coast exports have been priced to Henry Hub ("HH"), with contracts being HH plus a liquefaction toll. However, buyers are starting to shift to being overweight HH contracts and the last few weeks have seen the first set of contracts away from HH linkage.
On 2nd April, NextDecade signed a 20 year SPA to deliver LNG from its Rio Grande facility with Shell. The pricing is c.75% linked to Brent with the remainder linked to HH, on a FOB basis. First LNG is planned to be in 2023. This was the first-ever LNG contracts out of the US to be indexed to Brent and comes with full destination flexibility.
On 5th April, Shell went one step further by agreeing to sell LNG to a Japanese utility with a linkage to coal prices and is the latest innovation to help buyers seeking to diversify risks. This contract is for 10 years and is the first ever coal-linked contract.
Immediate direct threat to NextDecade's stock value: On 05-30-2019 the Sierra Club and other Intervenors asked the Federal Energy Regulatory Commission to issue a Supplemental Environmental Impact Statement on NextDecade's Rio Grande LNG project scheduled for FERC approval on 07-25-2019. They provided documentation that NextDecade has been telling investors that the project will produce more LNG than stated in the April 2019 Final Impact Statement (http://elibrary.FERC.gov/idmws/file_list.asp?accession_num=20190530-5516).
ReplyDeleteBut so far, there's just been a 05-30-2019 Sierra Club Press Release, a 05-30-2019 Defenders of Wildlife Press Release, three postings on the FERC CP16-454-000 and CP16-455-000 dockets, and two news stories on this (06-03-2019 and 06-23-2019, links provided below).
The most damaging of piece of information was the Sierra Clubs 06-21-2019 posting of a 06-06-2019 anonymous letter on the FERC dockets, available at http://elibrary.FERC.gov/idmws/file_list.asp?accession_num=20190621-5078.
The anonymous letter gives alleged details of an alleged plan orchestrated by Matt Schatzman to hide the company's plans to increase the amount of LNG to be produced by Rio Grande LNG from FERC while using the planned increase to get the financing it needs to make its Final Investment Decision. At that point, he planned to as FERC for forgiveness for the increased production goals instead of asking FERC for permission to produce that much LNG.
The information in the anonymous letter, available at has not been confirmed but is consistent with the Sierra Club et al's 05-30- 2019 request to FERC for a Supplemental Environmental Impact Statement on the Rio Grande LNG project (http://elibrary.FERC.gov/idmws/file_list.asp?accession_num=20190530-5516) and revised 06-17-2019 resubmission of their request for a Supplemental EIS on the project (http://elibrary.FERC.gov/idmws/file_list.asp?accession_num=20190617-5138).
Here are the two news stories:
"Environmentalists ask FERC to take second look at Brownsville LNG project," Jessica Corso, 06-03-2019, San Antonio Business Journal, https://www.bizjournals.com/sanantonio/news/2019/06/03/environmentalists-ask-ferc-to-take-second-look-at.html.
"Sergio Chapa, 06-23-2019, Houston Chronicle, https://www.houstonchronicle.com/business/energy/article/Enviros-allege-NextDecade-plans-to-build-larger-14039743.php?fbclid=IwAR2buOG9epsVaKGHhgPHDeeWGgNB6HGL84r1VqQNb88UKZYOlxO1oThnsYk.