Shares of LNG company NextDecade Corp. (NASDAQ:NEXT) have tanked nearly 50% after an appeals court issued an order vacating the company's federal regulatory permit for its Rio Grande LNG export complex in Texas, highlighting the big risks energy companies have to contend with when dealing with multibillion-dollar projects.
The D.C. Circuit Court of Appeals ruled the Federal Energy Regulatory Commission (FERC) should have issued a supplemental environmental impact statement during its remand process, casting questions over NextDecade's new $4.3 billion contract 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 engages in the construction of LNG plants in the U.S.
The ruling came just a 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 Aug. 5. Last year, Bechtel commenced work on Phase 1 of the project--valued at $12 billion--which includes Trains 1, 2 and 3. Rio Grande LNG's Phase 1 has signed customers that include Exxon Mobil (NYSE:XOM), Shell Plc (NYSE:SHEL) and TotalEnergies (NYSE:TTE), among others.
Last month, NextDecade signed a preliminary agreement with Saudi Aramco to supply 1.2M metric tons/year of LNG for 20 years from Train 4. The company says it's assessing its options regarding the court ruling, adding it would need to evaluate "the impact of the court's decision on the timing of a positive final investment decision on Train 4.'' The company has confirmed that construction works on Trains 1, 2 and 3 are continuing.
NextDecade is, however, in good company. Earlier this month, Venture Global LNG sued Kiewit in connection with work on its Calcasieu Pass plant in Cameron Parish, Louisiana. The suit alleges that the Omaha, Nebraska-based contractor passed confidential information about the $4.5 billion project's design and construction to competitor Shell. Meanwhile, lead contractor at the $11.6 billion Golden Pass export terminal in Port Arthur, Texas, Zachry Holdings has filed for Chapter 11 bankruptcy and agreed with the project's owners to exit the deal after the project went $2.4 billion over the original budget.
That said, LNG companies are not always on the losing side with the law.
A few weeks ago, the federal judge in Louisiana put the Energy Department's pause on natural gas export permits on hold, a setback for the Biden administration's climate agenda. Judge James Cain, a Trump appointee, granted a request for a stay from 16 red states that had challenged the pause, arguing the pause was inimical to their economies.
"Past precedent, which the applicants relied upon, allowed the approval of the applications to proceed when updates were made," wrote Cain. The judge has a track record of ruling against the government, having previously also blocked the Biden administration's social cost of carbon estimate in 2022. However, his decision was eventually overruled by the 5th Circuit Court of Appeals.
No Investors
Environmentalists, the Federal government and the legal system are not always the LNG's sector's biggest nemesis, with development of approved LNG projects sometimes facing delays for years thanks to a lack of investors.
To wit, the $43B state-led Alaska LNG project is yet to take off, with no major deals or investments announced by the Alaska Gasline Development Corp., or AGDC. Back in January, Alaska Republican Gov. Mike Dunleavy's administration presented the Senate Finance Committee with a $4.5 million budget request for the project, only to be met with pushback and sharp questions by three members of the committee.
"In my eight years of being a legislator, I don't think they've inked one investment. And so is this a good use of those funds?Or do we need a change in leadership over there?" posed Wasilla Republican Sen. David Wilson.
For decades, Alaskan legislators have dreamed about building a natural gas pipeline akin to ConocoPhillips' 800-mile long trans-Alaska oil pipeline, that could export gas to markets outside of the state, 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 Republican former Gov. Sean Parnell more than a decade ago and his successors, including Dunleavy, have continued to advocate for it. When complete, 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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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. More