SHANGHAI—NextDecade Corp. said on April 2 it has signed the first long-term contract for liquefied naturalgas (LNG) produced out of the United States to be indexed to Brent oil prices.
It signed a 20-year binding sales and purchase agreement (SPA) with Royal Dutch Shell for the supply of 2 mtpa of LNG from NextDecade's Rio Grande LNG export project in Brownsville, Texas, with full destination flexibility.
Shell will buy LNG on a free-on-board (FOB) basis starting from commercial operation of the project, which is expected in 2023, NextDecade said in a press release issued at an industry event in Shanghai on April 2.
Three-quarters of the LNG will be indexed to Brent crude oil prices, and the remaining volumes will be indexed to domestic U.S. gas price markers, including Henry Hub, the company said.
"Shell was the first to sign a long-term SPA from the United States indexed to Henry Hub in 2011, and so it is fitting they are the first to sign a long-term SPA from a U.S. LNG project indexed to Brent," said Matt Schatzman, NextDecade's president and chief executive, in the statement.
"We look forward to finalizing additional commercial agreements and to proceeding with the development of our Rio Grande LNG project," he said.
Many LNG export projects are now vying for financing amid an already crowded market, and developers are competing to offer flexible pricing options to potential offtakers.
Apart from Brent, NextDecade is also offering buyers LNG priced on other U.S. gas indexes such as Agua Dulce, Waha and Henry Hub, the company said in presentation materials.
It expects Brent-indexed volumes to form a significant portion of the first phase of its Rio Grande project, based on interest from potential LNG customers, it said.
With the majority of Asian LNG contracts priced off oil, U.S. LNG projects that can offer a diversity of price indexation beyond U.S. gas prices may be able to capture more market, said Saul Kavonic, an analyst with Credit Suisse.
"Asian buyers have some appetite for U.S. gas price linked LNG, but are also opting for a diversification of pricing in their portfolios," Kavonic said.
The agreement with NextDecade will secure more volumes for Shell's portfolio in the 2020s and ensures the company can meet growing demand from its global customers, said Slavko Preocanin, vice president of Shell's LNG marketing and trading division.
NextDecade expects a final investment decision on up to three trains at its Rio Grande project by the end of the third quarter this year.
Rio Grande is planned as a six-train facility at the Port of Brownsville, with a project cost estimated at $17.3 billion and capacity of 27 mtpa of LNG a year.
It will be supplied with natural gas from the Permian Basin, Eagle Ford Shale and other resources.
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