US LNG ambitions rocked by regulatory setback

Shares of the LNG company NextDecade Corp. (NASDAQ:NEXT) fell nearly 50% after an appeals court issued an order issuance of the company’s federal regulatory permit for its Rio Grande LNG export complex in Texas, highlighting the high risks energy companies face when tackling multibillion-dollar projects.

The D.C. Circuit Court of Appeals ruled that the Federal Energy Regulatory Commission (FERC) should have issued a supplemental environmental impact statement during its remand process, raising questions about the new $4.3 billion contract of NextDecade dollars for a liquefied natural gas facility in Brownsville, Texas. Environmental groups led by the Sierra Club sued NextDecade to challenge FERC’s approval of the planned project. NextDecade is engaged in the construction of LNG plants in the US

The ruling came just one day after NextDecade announced the $4.3 billion engineering, procurement and construction contract with Bechtel for train 4 of its Rio Grande LNG project on August 5. Last year, Bechtel began work on Phase 1 of the project — valued at $12 billion — which includes Trains 1, 2 and 3. Phase 1 of Rio Grande LNG has signed clients that include ExxonMobil (NYSE:XOM), Shell Plc (NYSE:SHEL) and TotalEnergies (NYSE:TTE), among others.

Last month, NextDecade signed a preliminary agreement with Saudi Aramco to supply 1.2 million metric tons/year of LNG for 20 years from Train 4. The company says it is evaluating its options regarding the court ruling, adding that it should evaluate “the impact of the court’s decision on the timing of a final positive investment decision on train 4.”The company confirmed that construction work on Trains 1, 2 and 3 continues.

The next decade is, however, in good company. Earlier this month, Venture Global LNG sued Kiewit in connection with work at the Calcasieu Pass plant in Cameron Parish, Louisiana. The suit alleges that the Omaha, Nebraska-based contractor passed confidential information about the design and construction of the $4.5 billion project to competitor Shell. Meanwhile, main contractor at the $11.6 billion Golden Pass export terminal in Port Arthur, Texas, Zachary Holdings filed for Chapter 11 bankruptcy and agreed with the project’s owners to walk away from the deal after the project ran $2.4 billion over its original budget.

That said, LNG companies are not always on the losing side of the law.

A few weeks ago, a federal judge in Louisiana put the Department of Energy on hold on natural gas export permits on holda setback for the Biden administration’s climate agenda. Trump-appointed Judge James Cain granted a request for a stay from 16 red states that challenged the break, arguing that the break was inimical to their economies.

“Past precedent, relied upon by plaintiffs, allowed approval of applications to continue when updates were madeCain wrote. The judge has a history of ruling against the government, having also previously blocked the Biden administration’s estimate of the social cost of carbon in 2022. However, his decision was ultimately overturned by the 5th Circuit Court of Appeals.

No investors

Environmentalists, the federal government and the legal system are not always the biggest enemy of the LNG sector, the development of approved LNG projects sometimes faces years of delays due to a lack of investors.

Specifically, $43 billion run by the state Alaska LNG Project has yet to take off, with no major deals or investments announced by Alaska Gasline Development Corp., or AGDC. In January, the administration of Alaska Republican Gov. Mike Dunleavy submitted a $4.5 million budget request to the Senate Finance Committee for the project, only to receive rejection and pointed questions by three members of the commission.

“In the eight years since I’ve been a legislator, I don’t think they’ve made an investment. And so is this a good use of those funds? Or we need a change of leadership there?” posed Wasilla Republican Sen. David Wilson.

For decades, Alaskan lawmakers have dreamed of building an 800-mile ConocoPhillips-like natural gas pipeline. the trans-Alaska oil pipelinethat could export gas to out-of-state markets, provide cheaper heating fuel for Alaska residents, and generate thousands of construction jobs. Geared toward exports to Asian markets, the project was first proposed by former Republican Gov. Sean Parnell more than a decade ago, and his successors, including Dunleavy, have continued to support it. When completed, the project will source its gas from the enormous Prudhoe Bay and Point Thomson oil fields owned by ConocoPhillips. ExxonMobil Corp. (NYSE:XOM) and Hilcorp.

By Alex Kimani for Oilprice.com

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