NextDecade Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2026

Key Takeaways

  • Positive Sentiment: Rio Grande LNG construction remains ahead of schedule, with Trains 1 and 2 74% complete and first gas still expected in the second half of 2026, followed by first LNG production in the first half of 2027. Management expects to narrow the startup guidance window in the fourth quarter.
  • Positive Sentiment: NextDecade completed financing transactions that raised $1 billion through a term loan and $3.5 billion through senior secured notes, using the proceeds and a swap settlement to repay approximately $4.6 billion of Phase One bank debt. The transactions extend maturities and free bank capacity for Train 6 and future expansions.
  • Positive Sentiment: FERC’s environmental review schedule for Train 6 supports a potential final investment decision in the second half of 2027, contingent on commercial support and financing. Management cited strong buyer interest, expects additional long-term SPA activity over the next six months, and reserved main refrigeration compressors with Baker Hughes.
  • Positive Sentiment: Management believes Middle East supply disruptions will keep global LNG prices elevated through at least 2030 and increase demand for reliable U.S. LNG. It expects its South Texas location to provide access to gas at a discount to Henry Hub, potentially supporting margins above the company’s $5-per-MMBtu guidance for some near-term uncontracted volumes.
  • Neutral Sentiment: Operating and maintenance expenses are expected to rise throughout 2026 as commissioning and operational-readiness activities accelerate, while LNG vessel charters are recorded as finance leases and will increase depreciation and interest expense.
AI Generated. May Contain Errors.
Earnings Conference Call
NextDecade Q2 2026
00:00 / 00:00

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Operator

Good morning, and welcome to the NextDecade Corporation 2Q 2026 investor call and webcast. At this time, all participants are in a listen-only mode. A question and answer session will follow management's prepared remarks. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. Now I would like to turn the call over to Megan Light, NextDecade's Vice President of Investor Relations.

Megan Light
Megan Light
VP of Investor Relations at NextDecade

Thank you. Good morning, everyone. Welcome to NextDecade's second quarter 2026 investor update call and webcast. The slide presentation and access to the webcast for today's call are available on our website at www.next-decade.com. Today, I am joined by Matt Schatzman, NextDecade's Chairman and Chief Executive Officer, and John Zuklic, NextDecade's Chief Financial Officer. Before we begin, I would like to remind listeners that discussion on this call, including answers to your questions, contains forward-looking statements within the meaning of U.S. federal securities laws. These statements have been based on assumptions and analysis made by NextDecade in light of current expectations, perceptions of historical trends, current conditions, and projections about future events and trends. Although NextDecade believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that the expectations will prove to be correct.

Megan Light
Megan Light
VP of Investor Relations at NextDecade

NextDecade's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in NextDecade's periodic reports that are filed with and available from the Securities and Exchange Commission. In addition, discussion on this call includes references to certain non-GAAP financial measures such as adjusted EBITDA and distributable cash flow. The definition of and additional information regarding these measures can be found in the appendix to our presentation. Now I will turn the call over to Matt Schatzman, NextDecade's Chairman and Chief Executive Officer.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Thank you, Megan. Good morning, everyone. Thank you for joining us today. First, I'd like to introduce our new Chief Financial Officer, John Zuklic, who joined the company earlier this month. John was previously the Chief Financial Officer at Citgo, where he led the finance organization and was responsible for setting and executing financial strategy, recapitalizing the company, building functions to strengthen forecasting, governance, and decision support. John brings significant expertise to NextDecade after 30 years in the energy industry. We're very happy to have him here at NextDecade. He's an experienced strategic and operational leader who will help us transform from an LNG development company to an LNG operating company. Transitioning to become a safe and reliable LNG operating company is one of our highest company-wide priorities in 2026.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We're making great progress toward this goal as Rio Grande LNG Phase One construction continues to advance safely, efficiently, and ahead of schedule toward first LNG production. In May, we safely energized the main substation at the site, and in June, we seconded over 100 operational employees to Bechtel in preparation for first LNG production. We continue to expect first gas into the facility later this year, and first LNG production from Train 1 in the first half of 2027. On our last call, we told you that we're tracking ahead of the schedule reflected in our production guidance, and that remains true today. As we continue to progress toward first LNG and get additional visibility into the production schedule, we will continue to evaluate opportunities to sell uncontracted volumes, and we expect to be able to narrow our forecast window for first LNG.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

I'd also like to thank the entire NextDecade team for their hard work and continued diligence in preparing for commissioning and startup across the organization. We have a lot of work to do, but I have no doubt we're placing ourselves in a strong position for a safe and effective transition to an LNG operating company. During the second quarter, we also made measurable progress on one of our financial goals for the year by determining out a significant portion of our phase 1 bank facility debt. John will discuss these transactions in more detail later in the call. In May, we filed the formal FERC application for Train 6. Yesterday we were notified by FERC that the final environmental impact statement will be issued by June 25th, 2027.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We believe that Train 6 is one of the most economically advantaged brownfield LNG expansions in the world, and we expect to capitalize on strong demand for LNG to underpin Train 6 and expand our capacity to deliver secure, reliable, and affordable LNG to customers around the world. Now I'd like to give some additional color on what's happening at the site as we progress towards first LNG production. As of June 2026, Trains 1 and 2 were 74% complete with engineering and procurement nearing completion, construction at almost 60%, and the start of commissioning. As of June, Train 3 was over 50% complete, Train 4 was 15.5% complete, and Train 5 was 9.4% complete. We have over 6,000 workers on site daily, and Bechtel is doing an outstanding job advancing construction while maintaining exceptional safety standards and performance.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Train 1 continues to progress positively and all major equipment has been set. We safely energized the main substation at the site in May with 138 kV power, and we seconded over 100 operational employees to Bechtel in June. These are all major achievements ahead of first LNG production. Construction beyond Train 1 is also progressing safely, on budget, and ahead of schedule. Train 2 major equipment installation is underway, and the second compressor string and turbine were set in July. Train 3 major equipment installation has also started, including the first compressor string. Welding of the inner tanks continues to progress for tanks 1 and 2, and tank 1 pipe installation is underway. The Train 4 soil stabilization process was completed recently, and foundation pours began for the main cryogenic rack. The Train 5 soil stabilization process also began this month, and tank 3 piling work is underway.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Construction of the Bay Runner pipeline continues to be on track for a third quarter 2026 in-service. Significant progress has been made on the inlet gas facilities, and the hot tap to Valley Crossing Pipeline was completed. Across the site, construction of permanent buildings is nearing completion, dredging activities for the berth and the turning basin are substantially complete, and our channel deepening project is complete. Bechtel's continuing to track ahead of what we have shown in our early volume guidance, giving us some buffer for unexpected events during commissioning and startup, while still achieving the production guidance we have provided. We achieved major milestones in development of Train 6 when we filed the formal FERC application in May. Yesterday, we received FERC's schedule of environmental review, which states that we will receive the final EIS on June 25th, 2027.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

This schedule supports a positive final investment decision or FID on Train 6 in the second half of 2027, contingent upon obtaining sufficient commercial support and financing. Additionally, we submitted our application to the Department of Energy for FTA and non-FTA export authorizations for Train 6 in June. Our goal is to fully commercialize Train 6 and to finalize an EPC contract with Bechtel on a timeline that supports FID in the second half of next year. We're also focused on ensuring that critical long-lead equipment is available when needed. In support of this objective, during the second quarter, we executed a reservation agreement with Baker Hughes to secure the supply of the main refrigeration compressors for Train 6. Commercialization of Train 6 continues to progress, and we're in active discussions for long-term SPAs with a number of high credit quality counterparties.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

The commercial environment for long-term LNG contracting remains strong. The underlying themes driving demand for incremental LNG supplies in the early 2030s have not changed. Fueling economic growth and industrialization in developing countries, supporting growing power demand and energy security, with energy security and supply diversification becoming even more critical for customers around the world since the Iran conflict began. We expect demand for long-term LNG contracts and prices for these contracts to remain strong as we continue to progress commercialization of Train 6. One of our key financial priorities this year is to determine the most value-accretive way to fund our equity commitments for Train 6.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We continue to expect that Train 6 will meaningfully increase future NextDecade distributable cash flow across a wide range of financing scenarios. We're focused on financing Train 6 in a way that both enables us to achieve our goals of maintaining full ownership of Train 6 and maximizing distributable cash flow on a per-share basis. Since our last call, global LNG market dynamics continue to be impacted significantly because of the Iran conflict. Whether stability returns soon or takes longer to materialize, the impact on the LNG market has been material. The ongoing closure of the Strait of Hormuz has taken almost 20% of the world's LNG supply off the market. Each month that Ras Laffan and Das Island remain shut in results in a loss of approximately 7 million tons of LNG.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We now expect the restart of these facilities, once it is safe and viable to do so, will take many months. The two trains that were damaged at Ras Laffan will take years to repair, and the expansion capacity, which has been under construction, could be delayed by a year or more, depending on how long hostilities continue in the region. Before the Iran conflict began, the LNG market was concerned the impending supply wave of LNG might cause a supply overhang. The current uncertainty around the return of LNG supplies from Qatar and the UAE, the amount of time it will take to repair the Qatar trains damaged by the Iranian attacks, and the delays to expansion projects currently under construction in the region will potentially remove additional material amounts of LNG supply from the global market through 2030 or longer.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

At a minimum, the current expected range of LNG supply scenarios, including the potential for a resolution of the situation in the Middle East this year, points to LNG supply growth through 2030 in line with or below the market's 20-year average growth rate. Based on our updated LNG supply forecast, we expect spot LNG prices to remain elevated through at least 2030. One very effective way for buyers around the world to acquire LNG at attractive prices is through long-term supply. U.S. LNG SPAs indexed to Henry Hub are particularly attractive due to the diversified, prolific natural gas resource base in the U.S., which effectively shelters buyers from spikes in the price of LNG and natural gas in other parts of the world.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Henry Hub pricing has been relatively flat to down since the Iran conflict began. Customers with long-term contracts out of the U.S. that are indexed to Henry Hub are currently able to deliver into Europe or Asia at levels below $8 per MMBtu. We expect buyers to increasingly value long-term contracts out of the U.S., which will spur additional capacity growth in the market. With our Trains 6 through 8 under development, we're in an excellent position to provide a meaningful amount of additional capacity to meet that demand. Before and after the Iran conflict began, we've received strong interest for long-term supplies out of Train 6. Now I'd like to turn the call over to NextDecade's new Chief Financial Officer, John Zuklic, to discuss recent financial transactions and highlights.

John Zuklic
John Zuklic
CFO at NextDecade

Thanks, Matt, and thanks to everyone on the line for being with us today. I'm happy to be here at NextDecade and look forward to start meeting with the investment community soon. As Matt said, we recently completed two financing transactions that termed out a significant portion of our outstanding Phase 1 project-level bank facility debt. These transactions diversified our bank maturity stack, our debt maturity stack, and freed up bank capacity for financing Train 6 and additional expansion capacity beyond Train 6. In June, we entered into a credit agreement for a $1 billion term loan at a Phase 1 project holding company level, which bears interest at 7.05% and matures in June 2033. Interest on this term loan is payable in cash or in kind at our election until the first interest payment after June 2029.

John Zuklic
John Zuklic
CFO at NextDecade

Proceeds from this term loan were used to reduce outstanding borrowings under the Phase One bank facilities. Migrating this portion of Phase One bank debt up to the Phase One holding company enabled us to achieve investment-grade ratings for our subsequent 144A issuance. In July, Rio Grande LNG, LLC, our Phase One operating and financing entity, issued $3.5 billion senior secured notes in a 144A offering. These notes, which are rated BBB- by S&P and Fitch, were issued in four tranches: $1 billion of 5.25% senior secured notes due 2031, $500 million of 5.5% senior secured notes due 2034, $1.25 billion of 5.75% senior secured notes due 2036, and $750 million of 6.15% senior secured notes due 2041. I'd like to thank the treasury and finance team for excellent execution of our inaugural 144A issuance, which was no small lift.

John Zuklic
John Zuklic
CFO at NextDecade

We built an initial order book of over $14 billion, and the transaction priced at the tight end of our anticipated range. In conjunction with these capital raises, we unwound a portion of our interest rate swaps associated with the bank debt we retired, resulting in a $109 million settlement receipt in July. We utilized the total proceeds of these three transactions, net of fees, to pay down approximately $4.6 billion of Phase One bank facility borrowings. We continue to expect that we will refinance the full bank facility balances at each project-level entity ahead of the guaranteed substantial completion of the respective project and will continue to be opportunistic based on market conditions. Now I'd like to cover a couple of items from our second quarter 10-Q.

John Zuklic
John Zuklic
CFO at NextDecade

First, we took delivery of two LNG vessels and their respective charters began during the second quarter, including the new build CLEAN TEXAS, the first of three new builds we have chartered to service our long-term Phase One DES contract. We currently have three LNG vessels under charter and expect to take delivery of additional vessels over the coming course of this year ahead of first LNG production. We also sub-charter some shipping capacity to third parties to better match our available capacity to our needed capacity. We will continue to charter and sub-charter vessels over time as needed to better match our available shipping capacity to our anticipated needs. The vessel charters are accounted for as finance leases in our financials.

John Zuklic
John Zuklic
CFO at NextDecade

Pursuant to lease accounting standards, the leased vessels are recorded as assets and lease liabilities on our balance sheet and are included primarily in depreciation and amortization and interest expense on our statements of operations. Income from sub-chartering vessels is included as an offset to operating and maintenance expense on our statements of operations. The second item I'd like to highlight from the second quarter financials is that we began breaking out our operating and maintenance expense this quarter as we approach first LNG production. In operating and maintenance expense, we have included costs related to the site and pre-operational readiness activities. Once operations begin, this will also include costs directly attributable to revenue-generating activities. Year-to-date 2026, the costs included in operating and maintenance expense consist primarily of labor, property taxes, and our site lease.

John Zuklic
John Zuklic
CFO at NextDecade

General and administrative expense continues to include costs relating to corporate management, governance, enterprise-wide support, and other support functions that are not directly attributable to operating assets or activities. As a reminder, our financials consolidate the Rio Grande LNG project entities and total G&A expense includes both NextDecade-level overhead as well as general and administrative expense for Rio Grande LNG. We applied this cost-splitting methodology retrospectively across our financials, and we expect operating and maintenance expense to increase throughout this year as we approach commissioning and operations. With that, we'll now turn the call over for questions.

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question, one follow-up. One moment while we pull for questions. Our first question is from Olivia Foster with Goldman Sachs. Please proceed with your question.

Olivia Foster
Olivia Foster
Analyst at Goldman Sachs

Hi. Good morning. Thank you for taking our questions. I wanted to start on operations. With first gas expected at Rio Grande in the second half of this year and first LNG expected in the first half of 2027, could you walk through the commissioning milestones we should be watching over the next two quarters? What are critical path items we need to see completed before we could introduce feed gas to the site and then produce first LNG thereafter? Lastly, when should we expect updated guidance to narrow around these operational milestones? Thank you.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Thank you, Olivia, and thanks for the question. There's a list of things, obviously, that are going to happen prior to us introducing first gas into the facility and starting to produce LNG. I think some of the major milestones that we'll highlight when they occur are obviously the completion of the LNG tank, and that should be coming here before probably the end of the year. The completion of the pipeline facilities, which we expect to have completed by this quarter with Bay Runner. As we said in our comments, the interconnect, the hot tap with BCP is already in place. We have that redundancy, but Bay Runner is our primary feed pipeline, and that's expected to be complete here in short order. There's a lot more, obviously, that's going on at the site.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We're obviously painting and hydrostatic testing and putting in insulation, all that work is proceeding, as we've already said, as planned or ahead of schedule. We do expect Train 1, assuming no major difficulties during the commissioning process, to be ahead of the schedule. That's even reflected in the volumes that we've got out in the market today. As far as updating the guidance around when we're going to start producing LNG, I'm hopeful that we'll be able to provide that in the fourth quarter. We should know a lot more over the course of the next few months. We'll start to introduce gas into the facility, as you mentioned, and we mentioned in our comments this year. We're still working with Bechtel on exactly the procedure for the commissioning and what order we want to do things.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

It shouldn't come as a shock if we don't introduce gas really soon that that's somehow a message that things are slowing down. There's a couple different ways to do it. You can commission the warm in the facility, you can commission the flares first to be very small introductions of natural gas, or you can start commissioning the turbines and do the flares simultaneously or around the same time. I wouldn't be focused too much on the filings as far as how much or when we start introducing gas. These are things that we're working through with Bechtel to come up with the most efficient way to commission the facility and do it as quickly and as safely as possible.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Later this year, I expect to be able to provide the market some more narrowed guidance as to the exact timing of when we're going to start producing LNG. I think as the commissioning goes on, Olivia, and we build confidence in the facility and the operations, we'll be able to update the guidance on the volumes as well.

Olivia Foster
Olivia Foster
Analyst at Goldman Sachs

That's clear. Thanks for the color. For my follow-up question, I wanted to ask on the geopolitical environment. With the ongoing conflict in the Middle East and the associated global LNG supply disruptions, can you describe any shifts you've seen in buyer activity in the market? How has this backdrop impacted your commercial discussions for Train 6? Lastly, how should we think about NextDecade's ability to announce new long-term SPAs in support of a potential Train 6 FID in the coming months and quarters? Thank you.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

I think the last earnings call, we're all very concerned about what's going on in the Middle East today and what's going on in Ukraine. There's a lot of negative things happening with respect to kinetic activities that people are dying around the world right now, especially in the Middle East and in the Eastern Bloc. We'd like to see all that go away. From our perspective, from NextDecade's perspective in the long-term LNG market, clearly the volatility that this has caused and the upward price pressure in the LNG market is actually helping us. The short-term spot prices will benefit NextDecade if they persist, and we expect that they will with our early cargoes and the cash flow we'll generate from Train 1 startup, potentially all the way through Train 5 DFCD.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

There's a lot of emphasis from suppliers on supply reliability, and the lack of reliability from supplies from the Persian Gulf has pretty much heightened the awareness of a lot of those buyers to focus on other supply sources, especially U.S., where we have become a very reliable and, for all intents and purposes, low-cost supplier of LNG when you look at it on a long-term contracting SPA basis. As I said in my comments, Olivia, we were marketing this before the Iran conflict began, and it was going extremely well, and we've been continuing to market it, and I can tell you that the level of interest has only increased in the past quarter as this conflict has persisted, and that there's more competition for the volumes that we have for sale out of Train 6, 7, and 8.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

As far as timing of SPAs, I think the market should expect to see some activities there over the course of the next six months. How much we do we'll determine based on how fast we want to move in this area. Clearly, if things get more challenging in the world and prices continue to remain elevated or go higher, that may provide some uplifts in contract pricing, and we'll think through that. But at the end of the day, the goal is to sequence our SPA contracting, EPC contracting Financing activities around Train 6 in a way that synchronizes to a second half of next year FID. The news yesterday from the FERC, I think shouldn't be missed. That was an unknown.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

I think we had told the market we expected the FERC to move rather quickly on permitting, that all signs pointed in that direction, and I think that's been confirmed with yesterday's schedule from FERC saying that they're going to review through an EIS, by the way. Instead of an EA, it's the more complete environmental review. They're going to do that and provide a final EIS in June of next year. That supports what we've been saying to the market, an FID of Train 6 in second half of next year. We expect the FERC order to come out soon after that. It's not going to take many months to do that. We expect this to go very smoothly.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We'll provide the market more updates as we receive permits, for example, from some of the agencies that contribute to the permit here as soon as we can. We're very positive there. Train 7 and 8, we are working diligently to try to get that pre-file before the end of the year. The hope is that we'll see a similar type of timeframe from the FERC on 7 and 8. We can get that done by the end of this year, possibly get the formal application filed by second quarter next year. Maybe we're looking at an FEIS the following June, and we're looking at FID-ing Train 7 and 8 a year after Train 6. All that's basically what we've been saying for quite some time, and it looks like everything's lining up to allow us to achieve those goals.

Operator

Thank you. Our next question is from Sunil Sibal with Seaport Global Securities. Please proceed with your question.

Sunil Sibal
Sunil Sibal
Analyst at Seaport Global Securities

Yeah. Hi, good morning. Thanks for all the color on the call. I was curious, in terms of your gas supply contracts, if you could provide some update on that. Obviously, U.S. gas prices, especially in some basins, have seen a lot of volatility. If you could talk about how does it impact your contracting strategy on the gas sourcing side?

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Thanks for the question. As everyone, I think is aware, we are located in South Texas, and we'll be buying our gas primarily at the Agua Dulce hub. That gas today prices off of a Houston Ship Channel index. There isn't a first-of-the-month index at Agua Dulce yet. There is a daily index, but not a first-of-the-month index. That may change over time. In fact, I would expect that it would. The gas that is sold at Agua Dulce, and there is a market there that buys Cheniere's Corpus Christi facility, is connected to the hub. Certain markets in Mexico are connected to that hub as well. Today, that market price is a Ship Channel market price, basically. When you're looking at our gas supply, I would focus your attention on the Houston Ship Channel Index.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

When you look at the Houston Ship Channel Index today, it trades at a substantial discount to the Henry Hub, which is how we price 99% of our contracts. We have a small portion of our LNG in phase 1 contracted to Brent. Everything else is priced off of Henry Hub. We think we're in a very enviable position with respect to some of the LNG projects, especially those in Louisiana, where we expect to be able to source our gas at a discount to the Henry Hub, at least for the foreseeable future, but in our view, is probably long-term. The reason for that is due to the prolific nature of associated natural gas coming from the Permian Basin, which continues to grow, has grown in the past quarter, in the past 6 months, and we expect will continue to grow into the coming years.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

As well as from the Eagle Ford Basin, which we also expect is going to continue to grow over the course of the next few years.

Sunil Sibal
Sunil Sibal
Analyst at Seaport Global Securities

Understood. Seems like you will sign some more contracts to shore up your margins in the next few months as you get more clarity on the Train 1 start. Obviously, we see on screens a lot of volatility in international LNG prices, especially in the near-term. I was curious, how do you think about that dynamic as you approach your contracting strategy? What we see on the screen a good measure of what you're seeing in the market, especially with the market depth in terms of your ability to contract, and obviously, how should we think about that in the context of what you've signed up so far?

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Yes. I think what you're referring to is when you look at the forward curve for TTF or JKM relative to the forward curve for Henry Hub which is the starting point, of course, as I said, you look at Ship Channel and the forward curve for basis for Ship Channel versus Henry Hub. You're getting a very clear picture of what our potential margins could be for the uncontracted volumes that are still available for us to sell. Clearly, based on where those prices are trading today, especially in 2027 and 2028, they are above the margins that we have guided to, which is $5 margins, which is inclusive of the cost of our gas relative to how we're selling the gas, whether it's FOB or DES. DES, you'd have to exclude shipping from that in order to get a margin.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

It is looking better in those years than what we've guided to. As you go further out on the curve into, say, 2029 and 2030, the market is backwardated. That is a bullish sign, by the way, when the markets are backwardated. What we would say is that the liquidity, when you're thinking about this and looking at what is most likely, the liquidity of that curve, clearly, there's more of it in the front end of the curve than there is in the back end, and more is trading in the front end than the back end. I would say that the value in your analysis, the value of the front end of that curve is probably extremely high, and the value based on the back end is probably not as reliable.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

As I said in my comments and what we showed in this slide, the wave has changed. It has ebbed. It is now below. We're not looking at a wave that exceeds the average growth of supply over the last 20 years. We're looking at a growth curve now inclusive of our project coming online during this period and other LNG coming online. We're now looking at a supply curve that is going below that average. Based on that, and I think you see this in the forward curve because the market actually realizes this, prices have strengthened dramatically from when we came out with our guidance originally.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We would expect that sort of pricing, maybe not at the levels that we're seeing next year or right now, but we'd expect that pricing to remain elevated, and I expect will allow us to track definitely towards our guidance, maybe higher from time to time, which I think is very positive, and I mentioned in the previous question. In other words, the market looks good for us, and we don't really anticipate this changing anytime soon. I will add, You didn't ask this question, but for context for everybody, you're seeing this in the crude oil markets right now as well. A lot of volatility every day and prices going up and down based upon kinetic activity in the Middle East. Somebody gets bombed, prices go up. Somebody talks about we're going to have peace talks, and the price goes down.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

This is reflected in some of the stock prices as well as we have correlated with that sort of volatility in the marketplace today. I think the way the market is trading right now, oil, maybe the way it's trading certain stocks, is not really looking at the forward and what is going to happen over the next few years. It's just pricing off of the short term. That is, I think, wrong. We are very, very quickly approaching a wall, unfortunately, both in the crude market and the LNG market. We're running out of SPRs. SPR deliveries are slowing down. Refined products inventories are being reduced. Remember, the Middle East has a lot of refined products as well that they export, as well as crude.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

In LNG specifically, Europe is not filling storage to a level that you would normally see and running out of time to do so. Add to that the Rough storage situation in the U.K. As I understand, they have yet to get approval from the regulator to inject gas in Rough storage. Europe, U.K. is very quickly reaching a critical point where they're not going to have potentially enough supply to get through the winter next year. If we have a cold winter, things can get much, much worse. This is the dynamic that we're looking at in the market today, and it is not improving. It's clear that the situation with Iran is not going to improve anytime soon. That leads to definitely more volatility, but probably with much greater upward pressure than we're currently seeing.

Operator

Thank you. Our next question is from Wade Suki with Capital One. Please proceed with your question.

Wade Suki
Wade Suki
Analyst at Capital One

Good morning, everyone. Appreciate y'all taking my questions this morning. Maybe expand a little bit, Matt, on the previous question from Sunil. It doesn't sound like there's been much of a change in, let's call it leading edge, 20-year SPA pricing. Feel free to confirm or deny, but any color around that would be great. Thinking, again, more on intermediate term type contracts. I think you kind of alluded to it in your comments, but if you could give us a sense where those are kind of shaking out, let's call them 5-year type of contracts. Safe to assume those are sort of north of $5 today? How are you all thinking about those intermediate type of volumes in the context of your kind of overall portfolio management?

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Thanks, Wade, for the question. The contracting market, as I said, is very, very bullish right now. That said, it's not bullish enough to push a Henry Hub type contract into the $3 range. We're still somewhere definitely north of $2.50, but south of $3. Where we end up will depend on, I think a couple of things, including the ongoing activities in the Middle East and the volatility there, but also impacts of interest rates. The cost of new capacity is sensitized to construction costs, labor costs, interest rates because we finance these projects. Inflationary pressures could push those costs higher, could push interest rates higher. It's not just a matter of pushing the cost of it.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

It may be something that for new entrants that are trying to get in this, the level that they are going to be able to sell for is going to continue to increase. As you know, this is a competitive market, you can't just go out and pick whatever price you want to sell for and say, "That's my price, and you must take it." People have options. Typically, as I've said in the past, what we've seen is new entrants who are trying to get their projects off the ground offer the most competitive prices, take the most risk on this. We're not in that situation. We're going to make sure that we price this at a level that we believe achieves the best returns we can get for our investors.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

I think that because of the efficiencies around Train 6, I believe this will exist for Train 7 and 8, as I said in my comments, we think this is one of the most economical brownfield projects in the world today. I think that puts us in a position to be very competitive, we do not have to discount. We will sell at market when we do it. We don't have to discount in order to try to get the customers to sign up with us. I think you all should still expect a range in the $2.50-$3 range, 150% of Henry Hub. Yes, the market has not changed. There's plenty of buyers for that product.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

There's not a new product way that I'm aware of that people have come up with that's financiable, that works better than a Henry Hub plus a fixed liquefaction fee. On the five-year front, I think what you can expect is that, as I said, the back end of this curve is not as liquid, I don't think it's as reliable as from a pricing perspective. I don't see any other than the curve getting closer to the compounding annual growth rate that we've seen for the past 20 years. That doesn't mean that we're actually going to achieve that. That's currently the forecast based on everything kind of working itself out in the Middle East. Hitting that curve requires things to start to normalize in the Middle East here before the end of the year.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

If that continues, we're going to be below that line, prices could be much higher. I would be wary about locking in prices on the back end of the curve, because I think there's more chance that we could lose supply than gain extra supply. I definitely am very focused on the front of that curve because I think the value that we're seeing in the market, even though we may be able to achieve more if we kind of just went spot on it, I think that value is starting to look very attractive. We're not prepared to contract for that until we have more certainty around the Train 1, Train 2 startup. We don't want to be short in this market.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

I'd rather risk not making as much and selling it at a slightly lower price than that on a spot basis potentially than going and selling forward right now and then have some issue crop up with Train One startup and end up being short in this market, which I think would be really bad right now.

Wade Suki
Wade Suki
Analyst at Capital One

No, I appreciate that. Thank you so much. All makes sense. Just switch gears a little bit, if I may. Just thinking about during the quarter, I think it was XRG picked off some of GIP's interest in Trains Four and Five, if I'm not mistaken. I think it was relatively small. Just kind of curious how you guys are thinking about maybe picking off some of these interests over time. Any color, timing, thoughts around that you could share would be great. Thank you again.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Yeah. Thanks, Wade. At this point, I don't think we're really interested in selling what we have. I'd probably like to buy more as opposed to selling. If you're talking about picking off some of the interest to purchase, so maybe you can clarify. You're not suggesting we should sell, you're saying maybe we should be buying some of these pieces? Is that what you're suggesting?

Wade Suki
Wade Suki
Analyst at Capital One

Exactly where I was going with that.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Yeah.

Wade Suki
Wade Suki
Analyst at Capital One

At some point, you guys think about picking off some of these interests.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Yeah. As I've said, we've got tremendous growth opportunities to expand where we own 100% of our expansion capacity. We're going to have opportunities for debottlenecking, which we can do with our partners which should be hopefully very low cost capacity increases. Then as you point out, we do have partners in these projects that probably are not going to be long-term holds for 100% of the position for 20+ years. As those opportunities present themselves, we absolutely would like to look at maybe acquiring more of that capacity back. We feel like we're going to be in a great position to offer hopefully very competitive opportunities to them. Since we're the operator, we know the asset better than anyone else.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

I think it is a good way and a good steer for some of our investors to think about, Wade, that it's not just the Train 6, 7, 8, 9, 10, and debottlenecking. There will be opportunities for us to acquire the additional operating interest from phase 1, potentially Train 4 and Train 5. It's another opportunity for NextDecade to continue to grow its cash flow if it makes economic sense to do so. Having someone like John around now to help us analyze that is paramount in making the right decisions for investors going forward. Thanks for the question.

Operator

Thank you. Our next question is from Craig Shere with Tuohy Brothers. Please proceed with your question.

Craig Shere
Analyst at Tuohy Brothers

Morning. Congratulations on the continued progress with the construction and the financings. Most of my questions have been asked. I did want to just dig in a little more on Sunil's gas supply question. Any thoughts, and this kind of feeds into financing and Train 6 FID. Any thoughts about the ability to lock in some long-term feed gas at a set discount to Henry Hub? That to your point, well, we don't want to get the max riding on the spot all the time on the sales.

Craig Shere
Analyst at Tuohy Brothers

Similarly on the other side, if you can lock in some supply at a fixed margin that is bankable, even if that's not as profitable quarter-to-quarter over a number of years, could that be an opportunity to definitively show the market, show investors, show those who would be lending for expansion that you do have better margins and you are a good credit?

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Let me start with the financing aspect. The lenders don't really look when they're sizing the debt, they don't really look at the gas supply, the value associated with purchasing gas at a discount to Henry Hub. I think your point is, if you did, if you could actually lock that component in, could you get credit for that and possibly increase the size of the debt that they're willing to provide? Yes, but there's a caveat. We don't think that the lenders will provide more than 75% of the total capital required for these projects anyway. We believe that, and we always strive to get to that, and I hope for Train 6 that we're able to get to 75% project level debt. That's going to be based upon what those contracts rates are.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

From a debt perspective, Craig, I think if we're able to achieve that 75% leverage without it, which is what our goal is, that'll be great. Therefore, if we can lock in, it doesn't affect how much debt we can put on at the project level. I think it does obviously lock in value and cash flow, which probably could be viewed differently by investors as far as how they value the company. We have looked at this, I think it's one of the opportunities that we have being in South Texas, the ability to provide producers, both the Permian Basin and the Eagle Ford, with the ability to buy at a percentage, a discounted percentage of Henry Hub, thereby locking in their basis differential long term to the Henry Hub and also locking in our basis differential.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

As you'd expect, at the end of the day, it boils down to a bid offer spread and whether or not we want to lock in at whatever that discount is assumed to be, because it's obviously going to be a percentage of Henry Hub. Henry Hub prices go up, it's a wider basis. If Henry Hub prices go down, it's a lower basis. I definitely think there's an opportunity there. How big that could be, it's going to be subject to how many producers want to lock in that basis differential long term, which tends to be sensitized to royalty issues. They don't have to do this. They tend to go at market, especially around royalties. I definitely think there are some out there that are interested in this.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Whether or not we're going to be able to do it will be based upon, like I said, that bid offer spread. Hopefully that was clear.

Craig Shere
Analyst at Tuohy Brothers

Yeah. Very clear. I appreciate it.

Operator

Thank you. Our last question comes from Alexander Bidwell with Webber Research. Please proceed with your question.

Alexander Bidwell
Analyst at Webber Research

Morning. Appreciate the time. We're seeing increasing labor competition in the U.S. Gulf, driven by the current slate of projects under construction. With the recent U.S. FIDs likely to further stretch craft resources in the back half of the decade. For both Rio Grande as well as other U.S. projects, what sort of knock-on impacts do you anticipate from this growing competition in terms of EPC costs, potential craft labor shortages, construction progress, et cetera?

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Thanks for the question. We've talked about this in the past, and I'm happy to say it hasn't changed for us. We are situated in the Rio Grande Valley, and the Rio Grande Valley has not been an area where there's been a tremendous amount of infrastructure development where craft labor jobs were readily available. The people that lived in that region had to travel to Corpus Christi or the Louisiana Gulf Coast or Permian Basin to find work. Bechtel is a direct hire model, these are all Bechtel employees. We have not seen any issues today ramping up our activities on site. As you know, we've gone from 5,000 employees to over 6,000 employees today. We got approval to increase that and go 24/7 with FERC. We have not seen any issue. We've said in our comments we're over 6,000 right now.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

We haven't seen, I don't think Bechtel's seen, an issue ramping that up, and I think there's a reason for that. There's a lot of people in the Valley that are skilled at these jobs, and they like the idea that they can work where they live. That's the unique opportunity that Rio Grande LNG presents. Many of these construction workers, especially now that we have train 4 and 5 under construction, and that the company is rapidly developing trains 6, 7, and 8, which we expect to FID second half of next year and hopefully a year after for 7 and 8.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

That this is an opportunity to have a construction job, be able to make a phenomenal living for the next 10 years, potentially, if we keep going out to 9 and 10, and live at home and watch your kids grow up, go home to your significant other at night. This is fairly unique. Even for our own team, our own construction team. These people have worked, they have a lot of experience, and they work on projects. They tend to be on those projects for three to four years, and then you have to let them go because you're not building anything anymore, and they got to go work on a different project. We pull people from Cheniere and Cameron and other LNG projects around the world. I think this is a fairly unique situation for us.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Even when there's another project that may FID close to us, they don't offer the same sort of construction work that a NextDecade's project does, where it's like, well, you could go work there for two or three years, or you can work here and get paid as much, maybe more, and do this for the next seven or eight years. Which one would you like to choose? That's not the case necessarily in Louisiana, where there's a lot of activity going on, and there's a lot of competition. Maybe the contractors aren't direct hire models either, so there's a lot of folks that they subcontract out, and it's very difficult for them to control the labor force. I think we're in a good shape right now. That doesn't mean it won't change. It could change.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

From what we've seen over the past year, as those activities have increased that you mentioned with other projects around the Texas Louisiana Gulf Coast, we haven't seen any issues getting what we need and keeping it.

Alexander Bidwell
Analyst at Webber Research

All right. Thank you for the color there. Real quick, just wanted to take a look at the sub-chartering of those LNG carriers. With the current freight rates modestly elevated compared to the last couple of years, have you been able to capture any upside in the carrier market from sub-chartering out those assets?

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

Yeah. Look, that's really not our focus. We're not trading these vessels. We only sub-charter them when we don't need them. The interesting about the shipping market, especially these new builds, and I've said this before and I think it's been true for the past 20 years, is especially in Korea, these shipyards are unbelievable at how fast they can build these ships. There was always going to be a slight gap between when we receive our ships and when we're going to need them. Obviously, that gap, we believe, is closing because we're going to be earlier than what we originally expected. At least that's the current trend, as we've said. We're not really focused on trading them.

Matt Schatzman
Matt Schatzman
Chairman and CEO at NextDecade

What we're actually focused on is if we sub-charter them, making sure that whatever we do, that we get those ships back in time to load our early cargoes and to start our long-term contracts.

Operator

Thank you. That concludes our call today. Thank you for joining and for your interest in NextDecade.

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      Megan Light
      VP of Investor Relations
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      Matt Schatzman
      Chairman and CEO
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      CFO
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