NextDecade (NASDAQ:NEXT) shares jumped by nearly 6% today after the company signed a 20-year LNG (Liquified Natural Gas) deal with energy giant Saudi Aramco. NextDecade provides LNG as well as carbon capture solutions.
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The Deal
NEXT’s primary focus is its Rio Grande LNG terminal facility in the port of Brownsville in southern Texas. Its 20-year LNG deal with Saudi Aramco involves LNG supply from Train 4 at the Rio Grande LNG facility. A “train” is a liquefaction unit that converts natural gas into LNG.
Under the deal, Aramco is set to purchase 1.2 MTPA (million tonnes per annum) of LNG on a free board basis at a price tied to the Henry Hub benchmark. However, the current agreement is a non-binding Heads of Agreement (HOA) between the two companies, which means it outlines the main terms and conditions of the deal but is not legally enforceable. The two parties are in the process of finalizing a binding deal.
For Saudi Aramco, the move is part of its strategy to expand its presence in international energy markets. For NextDecade, the deal could mean an investment in Train 4 and potential future opportunities. NEXT is aiming for a Final Investment Decision (FID) on Train 4 in the second half of 2024. An FID is a critical milestone in project development, marking the point at which a company formally commits to investing in the project, contingent on obtaining commercial support and adequate financing.
The Bigger Picture
Notably, the U.S. became the world’s biggest LNG exporter last year. According to Reuters, the country’s LNG capacity is expected to nearly double in the next four years. At the same time, demand for LNG is booming, especially from Europe. Amid this dynamic, the Rio Grande facility could play a key role. The project is estimated to produce nearly 27 MTPA of LNG at full capacity. Consequently, Abu Dhabi’s Adnoc acquired a nearly 11.7% stake in Phase 1 of Rio Grande last month. The deal gives Adnoc an option to invest in Trains 4 and 5 of the project in the future. Adnoc also has a 20-year supply deal with NextDecade for 1.9 MTPA of LNG.
What Is the Target Price for NEXT Stock?
NextDecade’s share price has rallied by nearly 68% over the past six months. Overall, the Street has a Moderate Buy consensus rating on the stock, alongside an average NEXT price target of $9.
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