Aramco and NextDecade Sign a Massive LNG Offtake Agreement

Aramco, one of the world’s leading integrated energy and chemicals companies, and NextDecade Corporation have announced that their respective subsidiaries have executed a non-binding Heads of Agreement (HoA) for a 20-year liquefied natural gas sale and purchase agreement (LNG SPA) for offtake from Train 4 at the Rio Grande LNG Facility to the Port of Brownsville, Texas, USA.

Signing Ceremony: NextDecade Chairman and Chief Executive Officer Matthew Schatzman, Aramco Upstream President Nasir K. Al-Naimi, and Aramco Executive Vice President of Gas Abdulkarim Al-Ghamdi

As part of the HoA, Aramco is projected to procure 1.2 million metric tons per year (MTPA) of LNG for 20 years on a free-on-board basis at a price indexed to Henry Hub. The negotiations for a binding agreement are currently underway, and the agreement's effectiveness will be contingent upon a positive final investment decision on Train 4, a development that could significantly impact the chemical market.

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Nasir K. Al-Naimi, Aramco Upstream President, said, "We look forward to finalizing the terms of a long-term LNG offtake agreement with NextDecade as we explore opportunities to expand our presence in international energy markets. We expect LNG to play an important role in meeting the rising demand for secure and efficient energy.”

What is an Offtake Agreement?

An offtake agreement is a contractual arrangement between a producer and a buyer. It's a pre-construction agreement, often used in industries like mining, oil and gas exploration, and agriculture, to secure a market for the producer's future output and ensure a steady revenue stream.

The primary purpose of an offtake agreement is to provide the producer with a guaranteed buyer, which can be crucial in obtaining financing for the project. For the buyer, it helps lock in a price and ensure a product supply, which can be beneficial if the product becomes popular or scarce.

Offtake agreements are common in industries like mining, upstream and downstream oil and gas projects, and agriculture, where upfront capital costs are high and producers seek to minimize their investment risk. These agreements detail the goods' price, quantity, and delivery date, even though they are agreed upon before production starts.

In essence, offtake agreements facilitate the financing of production facilities by providing a measure of security to producers and buyers regarding future sales and supplies. They are a key tool in project financing, especially for capital-intensive industries.

Read: TotalEnergies has Signed two LNG Contracts in Asia

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