Making LNG Cleaner

In November, Engie, a French utility, pulled out of discussions with NextDecade Corp (NEXT) to import up to $7BN of Liquified Natural Gas (LNG). It was a big blow to NEXT, which is seeking partners to underwrite its construction of an LNG export facility in Brownsville, TX. Engie concluded that the natural gas sourced by NEXT would be tainted by its involvement in fracking, methane leaks and flaring. It wasn’t consistent with their energy transition goals.

Last week, NEXT launched a new business, NEXT Carbon Solutions (NCS). Their intention is to use Carbon Capture and Sequestration (CCS) to keep 90% of the CO2 generated by their proposed LNG plant as it chills methane in preparation for transfer onto an LNG tanker.

It’s a natural response to the market. Engie’s decision was a wake-up call. Natural gas has a clear edge over coal when it’s burned to generate electricity. But the flaring and methane leaks that are part of natural gas production worldwide are a consideration for some buyers.

Liquifaction of natural gas uses a lot of energy. NEXT plans to use natural gas to power this process, and then capture and store the resulting CO2 emissions in former gas wells. The geology of south Texas is well suited to this. By installing the CCS equipment when the LNG liquifaction facility is built, there are substantial savings compared with adding CCS to an existing facility. NEXT intends to make the clean credentials of its product a competitive advantage.

Interestingly, the added cost is modest, maybe 2% of the price of natural gas based on its U.S. benchmark once tax credits are added. It’s less than 1% of its ultimate delivery cost to European buyers

NEXT is going further, by planning to use Responsibly Sourced Gas (RSG). This will be natural gas whose production has been independently certified as not associated with routine flaring and reliant only on electricity from renewables.

Their goal is to deliver natural gas to customers in Europe and Asia that has generated almost no Global Greenhouse Gases (GHG) on its way to the LNG tanker. Will it make a difference? NEXT is convinced it will.

It’s a logical development. The world has a huge opportunity to substantially reduce emissions by phasing out coal in favor of natural gas. Reducing the emissions involved in producing natural gas makes it even more compelling. NEXT is betting that gas produced with lower GHGs will attract environmentally motivated buyers, presumably an increasing portion of the market.

Over the next couple of years, U.S. GHG emissions will be moving in the wrong direction (see Emissions To Rise Under Democrats). This is partly an unavoidable result of comparisons with last year’s Covid slump in economic activity. But we’ll also be increasing coal consumption relative to natural gas, reversing a very positive trend that has lowered emissions for the past decade. Higher natural gas prices are the reason, since prior coal-to-gas switching by U.S. power plants has been driven by favorable economics.

This will be an uncomfortable result for a Democrat administration that campaigned on reducing emissions. Promoting coal to natural gas switching should become a more visible part of their strategy, both here and overseas.

NEXT includes an interesting slide comparing CO2 emissions that result from the RSG they plan to ship with competing sources. Nord Stream 2, the natural gas pipeline from Russia to Germany, is already controversial. Trump asked why the U.S. maintains troops in Germany to protect against Russia when Germany plans to increase its energy dependence on this potential adversary. There’s no good response to this question, and the Biden administration is similarly opposed to the pipeline’s completion.

Although geopolitics is a strong enough reason for Germany to buy its natural gas elsewhere (such as from the U.S.), the chart above from NEXT’s presentation suggests that different sources of gas come with a different climate impact. Maybe Climate Czar John Kerry can use such data in his discussions with other countries about lowering emissions.

NEXT is a tiny company with big plans. Their latest move may be a last, desperate attempt to sign up enough customers to finance the construction of their LNG facility. Or it may be an important step in the energy transition. If other established companies, such as Cheniere, make similar plans it’ll confirm that NEXT is on to something.

We are invested in all the components of the American Energy Independence Index via the ETF that seeks to track its performance.

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2 replies
  1. John Young
    John Young says:

    NextDecade is a looser company that 1) was incorporated in November 2010, 2) reorganized through a merger with the Harmony Merger Corp in July 2017 to get on the Nasdaq exchange, 3) announced its then paired Rio Grande LNG and Rio Bravo Pipeline projects toward the end of 2015, 4) announced and then stepped away from a proposed Pelican Bay LNG project around 2016, 5) sold its Rio Bravo project to Enbridge in February 2020, 6) announced an Inisfree FSRU MOU deal with the Irish Port of Cork around the middle of 2017 only to drop it in January 2019 (when it was actually the Port of Cork that dropped it), and 6) announced a Galveston Bay LNG project in early 2019 only to drop the project in January 2021 (never progressing to project beyond the preliminary FERC pre-application process). It got FERC approval for its Rio Grande LNG project in November 2019 but has yet to put shovel to ground anywhere on any project. Yet here it goes again announcing another sure fire glorious project: NEXT Carbon Solutions.

    During oral arguments before a three judge 5th Circuit Court panel 02-03-2021 it said it expect to make FID in December 2021. Last year, it said it needs firm offtake commitments for an additional 9 mtpa of LNG in addition to the 2 mtpa commitment it got from Shell 04-01-2019 before it can make FID. It has a lease agreement on the terms of a project site lease at the Port of Brownsville but has to make FID before it can enact the 30 year lease that includes two possible 10 year extensions.

    Regarding its NEXT Carbon Solutions project, the announcement of the project was paired with the announcement of a $24.5 million dollar Series C Certificate deal, but that deal won’t be finalized until NextDecade’s June 2021 stockholders meeting and York’s continued support for the deal. And it looks like some work is still needed on the “proprietary processes to lower the cost of using CCS technology” (“NextDecade Launches CCS Business for Rio Grande LNG,” Caroline Evans, 03-18-2021, Natural Gas Intelligence, https://www.naturalgasintel.com/nextdecade-launches-ccs-business-for-rio-grande-lng/).

    Thanks for mentioning the project intends to use “former gas wells.” I’m not sure the Port of Brownsville Commissioners will welcome any such without 3rd party verification that its appropriate for their property. In 2015, the local communities of Port Isabel, Laguna Vista, South Padre Island, and Long Island Village passed resolutions opposed to LNG but Rio Grande, Annova, and Texas LNG and the Port Commissioners didn’t care. But injection wells that are expected to swallow 5 million mt of CO2 a year for 30 to 50 years may be too much of a stretch even for them.

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