GasPro '16: NextDecade strategist sees room for more US LNG

Cheyne Hermes, strategy advisor and fundamentals lead for NextDecade LLC, gives a keynote speech at Gulf Publishing Company's GasPro Americas conference.

By Adrienne Blume, Editor

HOUSTON—Day two of Gulf Publishing Company's GasPro Americas conference kicked off on September 14 with a keynote speech from Cheyne Hermes, strategy advisor and fundamentals lead for NextDecade LLC.

NextDecade is developing the Rio Grande LNG export terminal at the Port of Brownsville near Brownsville, Texas, along with an associated pipeline project.

Second wave of US LNG. Despite the oversupply of LNG in the market today, opportunity exists for a second wave of LNG to come online after the market rebalances around the 2022–2023 timeframe. LNG demand growth is still forecast at 3%-4%/yr, "so there's room for growth," especially from US LNG, Hermes noted.

The crash in oil prices has pushed LNG prices to "rock bottom," Hermes said. "But nothing cures low prices like low prices, which means there's opportunity for new LNG suppliers to enter the market" around the middle of the next decade.

Hermes also believes that taking FID in the next 1–2 years for a major land-based LNG terminal, slated to come online after the market rebalance in 2022–2023, "isn't an insane idea." One-off projects and independent companies, such as NextDecade, are able to take development risks. This risk-taking ability makes project financial decisions possible in the near future.

The story is different, however, for international oil companies and oil majors, who are unable to take on as much risk.

New LNG trading approaches needed. US LNG also enjoys significant cost advantages, which will become increasingly important to major and emerging importers, particularly in Asia.

"New sources of demand require new approaches to supply," Hermes asserted. For this reason, he said, new LNG contract terms will emerge as sellers and buyers adopt less conventional policies and more flexible contracts.

Over the short term, successful projects will offer flexible credit terms, bridge offtaker credit gaps, and align investments along the value chain (i.e., liquefaction to the end user).

When investments are aligned along the value chain, "it's much easier to move projects forward" in terms of shipping, liquefaction, distribution, and securing credit, Hermes noted.

Rio Grande LNG progress. Hermes referred to the Rio Grande LNG project as a "lower-risk, higher-probability" development. NextDecade expects to secure FERC approval for the liquefaction terminal in mid-2017. It also expects to take FID at that time.

NextDecade sees demand for its LNG coming from Asia, particularly China, as well as countries like India and Pakistan.

The company will also build the Rio Bravo Pipeline for the delivery of up to 4.5 Bcfd of gas to the Rio Grande LNG terminal. A number of header system interconnects are proposed and include Energy Transfer, Kinder Morgan Tejas, NGPL, Tennessee, TETCO and Transco.

For more information on NextDecade's LNG market outlook and the Rio Grande LNG project and Rio Bravo pipeline, please see the Executive Q&A Viewpoint with NextDecade senior vice president of development and regulatory affairs, Shaun Davison, in the September/October issue of Gas Processing.

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