Developer of GIP’s Rio Grande gas terminal sees stock plummet by 40%, cancels carbon capture

Developer of GIP’s Rio Grande LNG project sees stock price drop
The developer of Global Infrastructure Partners’ (GIP) proposed Rio Grande LNG terminal, NextDecade, saw its stock plummet by over 40% after a court ruling overturned the project’s federal approvals.^[1]

The stock drop followed a D.C. Circuit Court-issued decision on August 6 to vacate the Federal Energy Regulatory Commission’s (FERC) approval of three gas projects, including Rio Grande LNG.

Global Infrastructure Partners’ fund V is the largest investor in the Rio Grande LNG terminal with a more than 46 percent stake, while NextDecade owns a 20.8 percent interest in the project.^[2] Private equity firms like GIP are exempt from financial disclosure rules and do not publicly report the value of their portfolio companies. But the project developer NextDecade is publicly traded. This gives valuable insights into the financial risks the project is facing, which overall is expected to cost $18 billion.

Rio Grande LNG abandons Carbon Capture
As part of its decision to overturn the FERC approval and remand the case back to the agency, the court cited a failure to “account for its updated environmental justice analysis,” related to opposition to the project from local communities.

The appeals court also agreed that FERC “needed to consider the company’s (Carbon Capture and Storage) CCS proposal as part of its environmental review of the terminal.” As a result, FERC must now develop a supplemental Environmental Impact Statement to determine the environmental impacts of the Rio Grande LNG project.

Two weeks after the court decision, NextDecade announced on August 20 that it has withdrawn its application for a proposed Carbon Capture and Storage (CCS) project at the terminal.

NextDecade Chair and CEO Matt Schatzman said in a press release that the project “is not sufficiently developed to allow FERC review to continue at this time” and that the company had asked FERC to terminate the proceeding.

The company’s reversal on carbon capture is in stark contrast to the claims it has made about the project. For example, as of August 26 NextDecade still claimed on its website, “Rio Grande LNG is the FIRST AND ONLY U.S. LNG project offering CO₂ emissions reduction of more than 90 percent via proposed carbon capture and storage – capturing and permanently storing more than 5 million metric tonnes of CO₂ per year, equivalent to removing more than one million vehicles from the road annually” (emphasis in the original text).

Rio Grande LNG is the largest of just two carbon capture projects NextDecade promoted on its website, which also stated, “We believe that integrating CCS with an industrial facility’s operations increases the value of the industrial facility.”

Carbon capture and storage is still largely an unproven technology, with the International Energy Agency citing its history of “unmet expectations” and “underperformance.”

Rio Grande setbacks amid GIP’s slow fundraising, fund underperformance
The Rio Grande LNG terminal is the only investment of GIP’s fund V, according to Pitchbook. GIP V has been in market since 2022 with a target of $25 billion, per reporting by Bloomberg.

As of March 2024, GIP V had amassed around $14.7 billion in commitments, according to SEC Form Ds that GIP filed, which suggests the fund may still have been 40 percent short of its target after around two years of fundraising.

GIP V’s two predecessor funds have underperformed, relative to peers, according to Pitchbook data^[3]. GIP Fund IV (2018 vintage) raised $22 billion nearly all of which has been deployed, but it has posted an IRR of 6.0% landing in the lowest quartile, as of March 31, 2024. The predecessor fund, GIP III (vintage 2015) raised $15.8 billion, and has an IRR of 9.6%, landing in the third quartile, as of March 31, 2024.^[4]

Court ruling likely delays construction
Utility Dive reported that “The court’s ruling likely delays Rio Grande’s construction schedule” because the projects “certificates could be invalid in six weeks if parties do not ask the panel or the full court to reconsider the decision, and construction cannot occur without them.”

Sierra Club, which led the litigation on the appeal, said, “The court order will require harmful construction of the Rio Grande LNG facility to stop when the court issues the mandate, which makes the court’s decision effective.”

Environmental justice and financial risk
Local community members and advocates have called for the project to be halted due to the environmental justice, Indigenous rights, economic and ecological impacts. Insurance company CHUBB was no longer listed as an insurer of the Rio Grande LNG terminal, according to an insurance statement obtained via public records request. Banks have also pulled financial support from the project including Societe Generale, BNP Paribas and La Banque Postale.

Investors should ask GIP to halt the Rio Grande LNG project due to growing environmental justice, financial and legal risks.

Resources

^[1] On August 5th, the day prior to the DC District Court’s decision, Next Decade stock closed at $7.78. The stock tumbled after the decision was issued, and continued a downward trend to land at $4.70 on August 20 – a 43% decline, details available here.

^[2]APPLICATION OF RIO GRANDE LNG, LLC, RIO GRANDE LNG TRAIN 4, LLC AND RIO GRANDE LNG TRAIN 5, LLC FOR PARTIAL TRANSFER OF NATURAL GAS ACT SECTION 3 AUTHORIZATION filed with the Federal Energy Regulatory Commission, Feb 22, 2024.

^[3] Pitchbook accessed August 23, 2024

^[4] Quartiles from Pitchbook accessed August 23, 2024. 1Q24 performance data for GIP IV and GIP III available here.