Rio Grande LNG and BND amend lease, amid global oil and gas market uncertainty

An aerial photo of the Port of Brownsville ship channel. Courtesy photo.

By Gaige Davila
editor@portisabelsouthpadre.com

The Port of Brownsville, also known as the Brownsville Navigation District (BND), has amended their lease with NextDecade’s Rio Grande LNG export plant project.

The lease amendment was voted on during an April 30 Port of Brownsville Commissioners telemeeting, being the single agenda item. All commissioners voted in favor of the lease amendment. 

Rio Grande LNG, one of three liquified natural gas (LNG) plants slated for the Port of Brownsville, and the BND entered into a 30-year, 984 acre lease on March 6, 2019. The amended lease, drafted on April 30 this year, states that Rio Grande LNG and the BND will enter into the lease agreement once a financial investment decision (FID) has been made for the first phase of the project, giving the project until May 6, 2021, with a possible extension to May 6, 2022, if Rio Grande LNG gives written notice to the BND. 

If the extension is not requested, the lease is terminated. BND Port Director and CEO Eduardo A. Campirano did not respond to the PRESS’ request for comment on why the lease was amended. 

An FID is the decision by a company to make a final commitment to a project, including the financial commitment to award a construction contract, according to the Department of Energy’s Global LNG Fundamentals handbook. But, before they can agree to an FID, the project “requires (1) the prior completion of all necessary government agreements, including complete fiscal terms and passage into law of all required enabling legislation and land allocation and access; (2) financing commitments provided to the project by the lenders, including export credit agencies, multilateral development banks, commercial banks, and other lenders,” the handbook says.

Rio Grande LNG delayed their FID, initially scheduled for delivery on November 6, 2019, to 2021. In their 2019 annual report to shareholders, NextDecade writes, “Rio Grande did not deliver the Effective Date Notice prior to the Outside Effective Date due to not having obtained the required permits for the Terminal prior to the Outside Effective Date and, therefore, the Outside Effective Date has been automatically extended on a month-to-month basis.”

Rio Grande LNG has not responded to the PRESS’ question asking why they are delaying their FID. 

Rio Grande LNG has received several operational permits for the export plant facility, required before they can begin construction: an air permit from the Texas Commission on Environmental Quality (TCEQ); a permit from the Federal Energy Regulatory Commission (FERC); a biological opinion from the U.S. Fish and Wildlife Service (USFWS); Department of Energy (DOE) authorizations to export gas to countries under the Free Trade Agreement (FTA) and not; and has already received a long-term buyer, Shell, for their exported LNG. 

Rio Grande LNG has also extended their contract price validity with Bechtel, the contractor selected to build the export plant’s trains, which move the LNG out of the facility, to July 31, a document from the U.S. Securities and Exchange Commission shows. 

But the recent decrease in oil and gas demand, from the COVID-19 pandemic, has damaged global LNG prices, according to the International Gas Union’s (IGU) 2020 World LNG Report published on April 27, compounded with increasing natural gas production. But the report says the oversupply was expected. 

“This is then likely followed by a period of recovery, with renewed uncertainty around the middle of the decade,” the IGU report reads. “This outlook is expected to set the tone among the projects that are actively under development and have yet to reach final investment decisions (FID), and was anticipated by many reputable forecasters.”The report then says they expect the “current glut” in the market to fade in 2020.

Texas LNG, another of the three export plant projects in the BND, has also delayed their FID until 2021, according to a report from S&P Global Platts. Cheniere Energy’s Corpus Christi LNG project’s third phase has also delayed their FID. Port Arthur LNG, another Texas-based export plant project in Jefferson County, has also had their FID delayed until 2021. Freeport LNG, near Freeport, Texas, which has three trains under construction, is delaying their fourth train construction’s FID.

Beth Archer, a spokesperson with Annova LNG, told the PRESS Annova LNG is scheduled to make its FID by December 31, 2020. 

Rio Grande LNG, Texas LNG, and Annova LNG are facing community and municipal opposition. The City of Port Isabel is in a pending lawsuit against the BND for its lease agreements with all three of the export plant projects, saying the BND “created a condition that is subversive of public health and constitutes an obstruction of public rights.” The lawsuit was remanded to a Texas state court, after the BND tried to move the suit to a federal court. The federal judge overseeing the case did not allow it, according to Port Isabel City Manager Jared Hockema. The Lone Star Chapter of the Sierra Club is one group opposing the export plants’ construction and welcomed Rio Grande LNG’s FID delay.

“Rio Grande LNG and the other dangerous fracked gas projects proposed for this area face significant local opposition and legal hurdles, and we’re glad to see the company’s decision to move forward has been delayed,” Rebekah Hinojosa, Brownsville Organizer with the Lone Star Chapter of the Sierra Club, said. “This fracked gas facility would be a disaster for our communities and should never be built. We’ll continue fighting to ensure that it’s shelved for good.”

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