Rio Grande LNG headwinds continue to exacerbate risks to investors

Rio Grande LNG, backed by Global Infrastructure Partners, a wholly-owned subsidiary of BlackRock

The risks to investors of Global Infrastructure Partners’ and BlackRock’s Rio Grande LNG are mounting as the project faces growing headwinds. Two months after the August 6th D.C. Circuit Court decision to vacate the Federal Energy Regulatory Commission’s (FERC) approval of Rio Grande LNG, the project developer, NextDecade, filed for rehearing as a last-ditch effort to bring the $18.4 billion project to fruition. 

The D.C. Circuit Court sided with community and environmental groups vacating the project’s FERC approval. This decision puts the gas terminal in jeopardy. According to NextDecade’s CEO Matthew Schatzman, such delays can be the death of large infrastructure projects. Despite the ruling, NextDecade has continued in the last few months and plans to continue construction during the appeals process despite the project’s uncertain future. If the court’s original decision stands at the end of the appeal process, experts say it is unclear if the company will still  be able to continue construction during FERC’s supplemental environmental review process according to reporting by S&P Global, adding more uncertainty to the investment.

During the rehearing process, work on the project is able to continue unless a “stop work” order is issued, either by court order or FERC. An attorney from Sierra Club, supporting the community organizations that brought this suit forward, said “the court order will require harmful construction of the Rio Grande LNG facility to stop when the court issues the mandate” which it has yet to do because of NextDecade’s rehearing request. FERC does not need to wait for the court mandate to issue a “stop work” order, as the regulatory agency did on the Mountain Valley Pipeline in 2018. The Rio Grande terminal was originally supposed to be completed in 2026 but now, due to expensive delays, is now projected to be completed in 2029. 

Outside of the regulatory risks of RG LNG, prices and demand for LNG remain volatile and speculative despite NextDecade’s claims that there is a global need for the Rio Grande gas supply. The International Energy Agency’s (IEA) newly released 2024 World Energy Outlook estimates there will be an oversupply of LNG on the international market by 2030 based on demand scenarios. Data and analysis from the Institute for Energy Economics and Financial Analysis also estimate long-term declines in LNG imports through Europe, Japan and South Korea through 2028.

Questions on financing, insurance

In May of 2024 the Abu Dhabi National Oil Company, the state-owned oil company of the United Arab Emirates, announced a deal to acquire an 11.7% stake in Rio Grande LNG Phase 1. However, there was no subsequent disclosure made to the Department of Energy (DOE) announcing the change in control. In November, the Private Equity Stakeholder Project and Public Citizen filed a joint letter to the DOE asking the agency to inquire whether RG LNG needs to update its ownership filings as a result of this proposed transaction. Shortly thereafter, Rio Grande LNG responded to clarify the deal has not closed and is partially contingent on the Train 4 portion of the project reaching a “final positive investment decision” also known as FID.

In another setback for Rio Grande LNG, according to an insurance statement obtained via public records request, insurance company CHUBB was no longer listed as an insurer of the Rio Grande LNG terminal. Banks have also pulled financial support from the project in the last several years. Societe Generale pulled out of the project in 2023, along with BNP Paribas and La Banque Postale. 

Community opposition to the project

There is significant community opposition to Rio Grande LNG. The Laguna Vista Town Council, the South Padre Island City Council, and Long Island Village unanimously adopted resolutions opposing the Rio Grande LNG terminal while the Point Isabel School District rejected a tax abatement offer from Rio Grande LNG. The Rio Grande LNG terminal would be built on the sacred land of the Carrizo Comecrudo Tribe of Texas yet Rio Grande LNG, regulatory agencies and banks have all failed to consult with the tribe on local impacts. Additionally, the facilities would significantly degrade local fishing, shrimping and natural tourism industries putting communities’ livelihoods at risk. While NextDecade states that the project would create new jobs, the company is only required to fill 35% of those jobs with local workers. Due to these risks, communities across South Texas have opposed Rio Grande LNG for years. 

As a result of a past successful community lawsuit finding FERC did not properly consider the impact of RG LNG on the climate, NextDecade added a carbon capture and sequestration (CCS) project to their RG LNG application in 2021. More recently, Rio Grande LNG faced questions from FERC regarding the company’s plans to utilize the CCS technology on the project. The company told FERC the CCS project was not “sufficiently developed” for FERC to review it as part of the agency’s analysis of the environmental impacts of Rio Grande LNG. This technology is the backbone of NextDecade’s claims that “Rio Grande LNG is the first and only U.S. LNG project offering CO2 emissions reduction of more than 90 percent”. CCS technology has drawn criticism from researchers and advocates. The Intergovernmental Panel on Climate Change (IPCC) found that CCS faces technological, economic, institutional, ecological environmental and socio-cultural barriers. Others think CCS is a false solution to the climate crisis and instead delays the transition away from fossil fuels.

Limited partners in Global Infrastructure Partners Fund V which invests in Rio Grande LNG are exposed to numerous risks from this project. Project delays, investors pulling support, permits revoked, unclear environmental harms, ongoing community opposition, etc. all create uncertainty for the pension retirees’ dollars used to finance RG LNG. Pension fund managers should address the financial, social, and ecological risks of the Rio Grande LNG terminal and urge Global Infrastructure Partners to halt the build-out of the Rio Grande LNG terminal in Brownsville Texas.