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The challenge: securing funding for a major new LNG project
Natural gas has a critical role to play in facilitating the global energy transition, including replacing more carbon intensive fuels such as oil and coal and supporting renewable energy. In this context, liquefied natural gas (LNG) represents a huge and ongoing growth story for the United States. With United States gas resources more than enough to meet strong domestic demand, developers are seizing the opportunity to create value by turning surplus supply into LNG and exporting it to the global market. In 2023 the United States exported more LNG than any other country, but there is plenty of growth yet to come.
NextDecade Corporation (NextDecade) sought to capitalise on the opportunity by pursuing the development of a large liquefaction facility on a 984-acre site in Brownsville, Texas, Rio Grande LNG project (RGLNG), Phase 1 of which required US$18.4 billion of total funding to be raised, including $12.3 billion of debt funding.
To secure debt funding, NextDecade needed to approach a raft of potential lenders. Convincing them to commit to such a sizeable project in such a dynamic sector required the execution of a complex, in-depth due diligence process. With a wealth of commercial expertise in the Gas and LNG sector and an outstanding track-record of supporting LNG project financing, Wood Mackenzie’s consultants were the natural partners to support lenders in undertaking their commercial due diligence of RGLNG.
Our approach: delivering expert Lender reports based on in-depth analysis
Throughout the multi-year engagement, Wood Mackenzie’s Gas & LNG Consulting team worked closely with the client and their financial advisor MUFG Bank, as well as interacting with potential lenders to address their questions relating to the commercial viability of the project. We acted as external consultants on the lenders’ behalf, conducting the independent, in-depth analysis required to support commercial due diligence and demonstrate the viability of the project. Based on our research, we compiled detailed reports and supplementary analyses assessing and confirming the project’s commerciality, including analysis on the following topics:
- Total addressable market globally for US LNG
- Quantity and cost of available gas resource in the US
- Strategy and process for sourcing gas and transporting it to the facility
- Profile and industry credentials of each RGLNG customer
- Viability, reasonableness and attractiveness of customer contracts
- Long-term oil and gas price outlook
These reports and analyses provided a logical framework within which lenders could evaluate the project as a prospective investment and were supplemented by numerous calls and e-mail exchanges to address specific lender questions and points of clarification.
To carry out the analysis and provide support, the team leveraged its extensive experience of supporting the financing of LNG projects, including several in the US, as well as a range of Wood Mackenzie Gas & LNG research products.
The result: a positive final investment decision for Phase 1
In July 2023, NextDecade announced a positive final investment decision for Rio Grande LNG Phase 1, comprising the first three liquefaction trains of the 27 million tonnes per annum (mtpa) facility. The US$18.4 billion raised for this first phase of the development represents the largest greenfield energy project financing in US history.
Wood Mackenzie’s experience, track-record, industry credibility and leading Gas & LNG reports and analysis were key diligence documents and a significant factor in securing the necessary debt funding.
Both parties see the work as the start of a longer relationship, and we will be on hand to support NextDecade as it targets refinancing and focuses on building out the next phase of the project.
As Brent Wahl, NextDecade’s Chief Financial Officer, commented: “We look forward to working with Wood Mackenzie in the future – we still have more trains to build!”
“As expert advisors we have supported the raising of around US$110 billion worth of capital for LNG projects to date.”
“Wood Mackenzie’s willingness to provide the support we needed on tight deadlines definitely went above and beyond, and was consistent with the firm’s impeccable reputation.”
Brent Wahl, CFO, NextDecade
“The Wood Mackenzie team were a genuine pleasure to work with and were able to step in to help get new parties up to speed on gas and LNG with real care and to great effect.”