What happened
Shares of NextDecade (NEXT 3.50%) surged more than 13% by 10:30 a.m. ET on Thursday. Fueling the rally in the liquefied natural gas (LNG) development company was an agreement to supply LNG to China's Guangdong Energy Group.
So what
NextDecade signed a binding Heads of Agreement with Guangdong Energy to supply it with LNG for 20 years from its proposed Rio Grande LNG export project in Texas. The agreement would see Guangdong Energy purchase up to 1.5 million metric tons of LNG per year from train one of its Rio Grande LNG terminal, which would start operations in 2026. The companies plan to sign a sale and purchase agreement in the second quarter.
Image source: Getty Images.
This agreement is a notable milestone for NextDecade. Guangdong Energy will be the second foundational customer of its Rio Grande LNG project, behind Royal Dutch Shell, which signed a 20-year agreement for up to 2 million metric tons per year. The deal is also important strategically as it's the company's first agreement with a Chinese company. Guangdong is one of the largest power producers in China.
Guangdong chose to partner with NextDecade because of its focus on sustainability. Along with Rio Grande LNG, NextDecade is developing one of the largest carbon capture and storage (CCS) projects in North America. As a result, Rio Grande LNG will supply the greenest LNG in the world. That CCS project also appeals to Guangdong Energy, which sees the potential to partner with NextDecade on CCS in the future.
NASDAQ: NEXT
Key Data Points
Now what
NextDecade is taking another critical step toward officially moving forward with Rio Grande LNG. It now has two foundational customers that could take up to 3.5 million metric tons of LNG per year.
However, that still leaves it with a lot of work to do. The company plans to build a minimum of two LNG trains with 11 million metric tons of capacity per year, potentially expanding to 27 million metric tons per year in the future. It needs to secure additional contracts to approve this project, which it hopes to be in the position to do by the second half of this year.
