With lots of liquefied natural gas (LNG) coming from the West Texas Permian Basin and not enough ways to store or ship it, market actors are finding a ready source of capital to fund the infrastructure development gap: sovereign wealth funds.
Last week, Mubadala, the $229 billion sovereign fund of the Government of Abu Dhabi, announced that it has invested $50 million in LNG export developer NextDecade in a private placement valuing the common stock at $6.27 per share. Mubadala will also receive a board seat at NextDecade, along with the right to contribute project-level capital upon the final investment decision of NextDecade’s RioGrande LNG project.
Publicly listed NextDecade is aiming to develop the largest LNG export structure to link gas from the Permian Basin to the global LNG market. Its current project portfolio includes the Rio Grande LNG export facility in Brownsville, Texas, which has a capacity of 27 metric tonnes per annum (MTPA), and the Rio Bravo Pipeline, with a capacity of 4.5 billion cubic feet per day (bcf/d) to transport natural gas from the Agua Dulce area to Rio Grande LNG.
The firm’s Permian ambitions are unfolding at a time when a chronic lack of infrastructure to transport hydrocarbons from the basin to export markets are leaving producers vulnerable to capacity shortfalls and price volatility, at least until new pipeline capacity comes online.
Speaking with S&P Global Platts Analytics earlier this fall, NextDecade Chairman and CEO Matt Schatzman said “The Permian Basin is going to change the global LNG landscape. Every incremental hydrocarbon produced from this day forward – whether it’s oil, liquids or gas, needs to be exported.”
The NextDecade deal marks the second major commitment to Permian Basin energy producers from a high-profile sovereign wealth fund in recent months.
In August, it was reported that an affiliate of Qatar Investment Authority, the sovereign wealth fund of Qatar, would invest $550 million in Oryx Midstream Services, a privately held Permian Basin midstream gathering and transportation operator. The seller was an affiliate of Stonepeak Infrastructure Partners. The deal is part of some $45 billion in planned QIA investments in U.S. targets as part of a fund rebalancing to tilt its exposure toward North America and away from Europe.
Who else is playing in the Permian?
Permian infrastructure is also finding finance partners in foreign, non-sovereign investors. This fall, Houston, Texas-based LNG developer Tellurian signed a memorandum of understanding (MoU) with Petronet, India’s largest LNG importer, on a $2.5 billion equity investment and $5 billion offtake agreement for its $30 billion Driftwood LNG liquefaction and export facility in Louisiana.
Driftwood has already garnered a $907 million commitment from France’s Total and is reportedly in advanced talks with other possible partners for investment in the project, for which Tellurian will retain 49% equity.
Speaking with Petroleum Economist earlier this month, Tellurian CEO Meg Gentle said that despite current oversupplied market conditions, her firm believes LNG demand will likely outpace supply over the next decade, even with more global LNG capacity expected to come online in Qatar, Russia, Mozambique and others, by mid-decade.
Gentle told the publication that she anticipates these build-outs will take longer than expected, spanning multiple years, and that even post supply ramp-up, the global market will expand to take whatever LNG is supplied.
Mubadala’s Executive Director of Midstream, Khalifa Al Romaithi, was similarly upbeat in announcing the NextDecade transaction, saying: “Our investment also reflects Mubadala’s positive outlook on the global gas market and the growing role of gas in the energy transition.”
In its recently released Global Gas and LNG Outlook to 2035, global consultancy McKinsey wrote that it is forecasting yearly global gas demand growth of 0.9% until 2035, while projecting growth in LNG demand at 3.6% per year during the same period.
“Demand growth by the middle of the next decade should balance the excess LNG capacity in the current market and planned capacity additions. We expect that further capacity growth of around 250 billion cubic meters will be necessary to meet demand to 2035,” their analysts wrote.