Adnoc makes first investment in US with stake in Rio Grande LNG project

Abu Dhabi company’s agreement with GIP in Texas also secures an option for equity participation in the future expansion of the project

An LNG export complex in Hackberry, Louisiana. The US became the world’s largest LNG exporter last year amid growing demand from Europe. AP

Adnoc has acquired a 11.7 per cent stake in phase one of NextDecade’s Rio Grande liquefied natural gas export project in Texas, marking its first investment in the US.

The equity stake was acquired by the Abu Dhabi energy company through an investment vehicle of Global Infrastructure Partners, Adnoc said on Monday.

The agreement with GIP, an infrastructure investor, also secures an option for equity participation in the future Train 4 and Train 5 of the project.

Trains are the liquefaction units that convert natural gas into LNG. Each train consists of equipment and processes that cool and condense natural gas into its liquid form for storage and transport.

Adnoc also entered a 20-year LNG offtake agreement with NextDecade for 1.9 million tonnes a year on a free on-board basis at a price indexed to Henry Hub, subject to a final investment decision.

“We are delighted to partner with NextDecade on this world-class, lower-carbon LNG project as it marks a significant milestone in Adnoc’s international growth strategy and provides us [with] access to one of the world’s top LNG export markets,” said Musabbeh Al Kaabi, Adnoc's executive director for low-carbon solutions and international growth.

Rio Grande LNG, which will produce 27 million tonnes of LNG annually at full capacity, is expected to begin operations in 2027.

The project will also include a carbon capture and storage project capable of handling five million metric tonnes of carbon dioxide annually, equal to removing a million vehicles from the road each year.

The US became the world’s largest LNG exporter last year amid growing demand from Europe, which is looking to end its reliance on Russian gas imports.

For companies, US offers a strategic location with access to major markets in Asia and Europe.

US and Mexican LNG project export capacity is expected to reach 238 million metric tonnes a year by 2050, accounting for 30 per cent of global supply, according to Wood Mackenzie.

However, the US government halted approvals for pending and future applications to export LNG in January, in response to activist concerns about its impact on climate change.

China, India and countries in South-East Asia are driving an increase in energy demand. LNG is considered to be more environmentally friendly than coal when it comes to power generation and industrial applications.

Last week, Qatar’s Energy Minister Saad Al Kaabi said the Gulf country would sign more long-term LNG contracts this year as demand for the fuel grows in Asia and Europe.

LNG is not difficult to sell but negotiations surrounding the specifics of the sale, such as contractual terms and pricing, can become a “sticking point” in finalising agreements, he said during the Qatar Economic Forum.

NextDecade aims to reach a final investment decision on Train 4 at the Rio Grande LNG complex in the second half of this year.

It is subject to the finalisation of an engineering, procurement and construction contract, as well as the necessary commercial arrangements and adequate financing, Adnoc said.

“LNG from our facility will allow Adnoc to further increase its presence in the global LNG market while also supplying global customers with more affordable and less carbon-intensive LNG,” said NextDecade chairman and chief executive Matt Schatzman.