ExxonMobil deal boosts Brownsville liquified natural gas project

The 20-year agreement will help finance construction of the Rio Grande LNG facility.

By Michael Marks & Yvonne MarquezAugust 1, 2022 5:27 pm,

NextDecade Corporation, a Houston-based energy company, is in the process of building a liquified natural gas facility in Brownsville called Rio Grande LNG. The plant would take in natural gas piped primarily from West Texas, then liquify it so the gas can be exported overseas.

The project has been in the works for years, but uncertainty in the natural gas market has slowed its progress. There’s also a coalition of people from the area – including environmental groups, shrimpers and fishers, and human rights activists – who oppose the project.

But late last week, the facility took a big step forward when ExxonMobil agreed to buy 1 million tons of liquified natural gas per year for the next 20 years. Sergio Chapa, a reporter for Bloomberg, spoke to Texas Standard about what the deal means for the project’s future.

This transcript has been edited lightly for clarity:

Texas Standard: How does this agreement affect the future prospects for this liquefied natural gas facility near Brownsville?

Sergio Chapa: This project has been on the drawing boards for almost a decade – I mean, going back to 2014 – and it’s a massive export terminal that wants to take advantage of the abundant natural gas. We’re talking the Eagle Ford Shale, we’re talking the Permian Basin; pipeline it to the coast and then down Brownsville way. And then the idea was to freeze the gas until it becomes a liquid – and that’s -270 degrees – and then put it on boats and ship it around the world. We’re talking 27 million tons of LNG, liquefied natural gas, per year, leaving Brownsville.

During the coronavirus pandemic, there was a global surplus of natural gas. There was a drop in demand and a drop in prices. And so not a lot of contracts were getting signed for these projects. That all changed, you know, in the fall [and] winter of last year of 2021, when Europe realized it was short on LNG and that tightened the global market and sent prices soaring to the situation where we’re at today. And then, you know, Russia’s invasion of Ukraine exacerbated that problem even further. And now we’re seeing deals signed six days apart, one day apart. These deals have accelerated over the last four months.

You mentioned that this has been talked about for some time, but the project had lay dormant and that Texas has a lot of LNG. Where has that LNG been going until now, if we’ve got so much to export? Has it been burning it off? What exactly has been happening?

Well, a lot of that natural gas is shipped via pipeline across the border to Mexico, where there’s power plants, maquiladoras. We’re talking 7 billion cubic feet per day, but another like 12 billion cubic feet per day leaves any of the seven LNG export terminals in the United States. Most of them are on the U.S. Gulf Coast, two are in operation in Texas, one is under construction in Texas. And this Rio Grande LNG could become the fourth.

These kinds of facilities face a lot of regulatory hurdles before they can get up and running. Does NextDecade have any more red tape to cut through before it can move ahead?

Well, definitely, I’m glad you asked that. I mean, you know, getting the permit is the easy part. It’s just afterwards you’ve got to obtain the billions of dollars of financing. You have to land the contracts and then obtain the financing to build the project. And even then, the project still faces challenges. Federal regulators are still wanting questions, answers regarding emissions and social justice impacts to communities down there in the Rio Grande Valley. This is along the U.S.-Mexico border region, some of the poorest people in the United States, also a majority Latino area. So there are some activists and opponents there stressing that opinion. There’s a legal fight over a wetlands permit. There are activists putting pressure on banks not to finance the project.

And then, you know, because of the pandemic, the project was originally supposed to be in service in in November of 2026. But because of the delays caused by the pandemic, the project is now asking to push that deadline back to 2028 to have the full thing in service. And that’s something that’s being fought and debated right now that hasn’t been approved yet. But that’s another little hurdle they need to overcome.

You mentioned Ukraine war earlier; a lot of countries in Europe are really concerned about what they’re going to be facing as we approach the winter. They’re worried about Russia weaponizing energy supplies – cutting them off, to be short about it. For example, Germany, one of the biggest countries that depends on Russia, doesn’t have an LNG infrastructure. Now it’s talking about a complete about-face getting ramped up so that it has better and more diverse sources of heating energy. How much does that factor into the viability of this new facility in Brownsville?

Now, two words have entered our vocabulary after Russia’s invasion of Ukraine: energy security. And that’s being able to have enough energy to keep the lights on and keep people warm during the winter. And that’s been very much top of mind for Europe, where natural gas prices have risen dramatically. You know, in Europe, natural gas is now selling for $50. Where in the United States, you know, for our own various reasons, we’re approaching $10. So that’s several times much more than the United States. There’s a good profit there to be captured in sending LNG to Europe, an arbitrage, if you will. And yes, that is very top of mind for Europe this summer. They’re spending the summer trying to build up their storage in winter reserves. That way, when winter does come, they’ll have enough natural gas to run power plants and to heat homes.

If you found the reporting above valuable, please consider making a donation to support it here. Your gift helps pay for everything you find on texasstandard.org and KUT.org. Thanks for donating today.