What happened

Shares of NextDecade (NASDAQ:NEXT) soared more than 24% by 11 a.m. EDT on Wednesday. Fueling the LNG stock were modifications to its Rio Grande project, which will see it build fewer liquefaction trains yet yield the same annual production. 

So what

NextDecade plans to optimize its Rio Grande LNG project thanks to advances in technology. When the LNG project developer started moving forward with Rio Grande about five years ago, it based the project on building six LNG trains capable of producing 4.5 million metric tons of LNG per year. However, technology has evolved since then, which will allow it to produce more LNG per train with fewer carbon emissions. Because of that, NextDecade plans to build Rio Grande using five trains instead of six, which still will be capable of producing a combined 27 million metric tons of LNG per year. 

An LNG tanker leaving a terminal.

Image source: Getty Images.

The optimized project has several benefits compared to the original six-train design, including: 

  • 21% fewer carbon dioxide emissions 
  • A shortened construction timeline for the full project 
  • Reduced facility footprint
  • Less traffic on roadways
  • A lower cost profile for both construction and LNG manufacturing

The company now plans to vacate the sixth LNG train and proceed with a five-train project. However, it could eventually develop the sixth train, pending market demand and government approvals. 

NextDecade currently has a 20-year LNG sales contract with Shell (NYSE:RDS.A)(NYSE:RDS.B) for 2 million tons per year. It believes that it will need to secure additional contracts totaling 9 million tons per year to move forward with a Final Investment Decision on the project. Those contracts should be easier to win now that it has optimized the project.

Now what

NextDecade's optimization of Rio Grande is a positive development. However, it remains a highly speculative investment since it's not generating any revenue and has yet to secure enough sales contracts to move forward with construction on this project. Meanwhile, even if it does move forward, it will be years before the company starts seeing a return on its investment, assuming everything goes according to plan.