What happened
Shares of NextDecade (NEXT -0.63%) soared more than 20% by 10:30 a.m. ET on Wednesday. Fueling the liquefied natural gas (LNG) company's rally was another deal with a Chinese LNG buyer. That put the company another step closer to moving forward with its Rio Grande LNG project.
So what
NextDecade signed a 20-year purchase and sales agreement with ENN, a large Chinese energy company. ENN will buy 1.5 million metric tons of LNG per year from NextDecade's proposed Rio Grande LNG export project in Texas. It would purchase the supplies from the first two LNG liquefaction trains at the facility, which NextDecade expects will start commercial operations by early 2026.
Image source: Getty Images.
This deal marks the third one by NextDecade to support Rio Grande LNG's development. Late last month, the company unveiled a 20-year contract with China's Guangdong Energy covering 1.5 million metric tons of LNG per year from the first train of Rio Grande LNG. NextDecade also has a 20-year agreement with Shell for up to 2 million metric tons of LNG per year from Rio Grande LNG.
With this agreement, NextDecade has now secured buyers for up to 5 million tons of LNG per year from Rio Grande LNG. That puts it another step closer to making a positive final investment decision (FID) to move forward with construction on the first two trains at Rio Grande LNG, which would have 11 million tons of LNG production capacity per year. The company expects to make that decision in the second half of this year. It also hopes to make a positive FID on the remaining three trains in the future, which would boost the facility's total capacity to 27 million tons of LNG per year.
Now what
This agreement with ENN nudges NextDecade closer to making a positive FID on Rio Grade LNG. However, the company still has a lot of work to do before that facility generates any revenue. It must secure more consumers, obtain construction financing, and build the project. Because of that, investors should monitor its progress closely because failure to secure customers or financing could impact its ability to develop this potentially high-value project.
