What are the pricing terms linked to Henry Hub and how might future natural‑gas price volatility impact the deal’s economics?

Pricing terms – The SPA ties the LNG price to the U.S. Henry Hub spot market. The contract is FOB (free‑on‑board) from Rio Grande LNG’s Train 5 and sets the LNG price as a straight index to the Henry Hub gas price (typically the monthly average of the NYMEX Henry Hub futures at a defined settlement point, with any agreed‑upon add‑ons such as a fixed margin or transportation adjustment disclosed in the full SPA). The deal is for 1.5 MTPA for 20 years, conditional on NextDecade completing the final investment decision on Train 5.

Impact of future gas‑price volatility – Because the buyer (EQT) pays an amount that moves in lock‑step with Henry Hub, any upside in U.S. natural‑gas prices directly improves NextDecade’s revenue and margin on the train, while a prolonged low‑price environment compresses those economics. Conversely, EQT’s cost of supply will rise sharply if Henry Hub spikes (e.g., during cold snaps, supply constraints, or a tighter domestic gas market), potentially stressing the offtaker’s credit or prompting renegotiation. The long‑term, volume‑fixed nature of the contract means the parties are exposed to basis risk: the LNG price may diverge from the underlying physical gas price due to differences in liquefaction, shipping, or regional demand. Traders should therefore watch the Henry Hub forward curve, especially the 1‑ to 3‑year contracts that align with the SPA’s horizon, and assess the spread between Henry Hub and LNG forward prices (e.g., Asian or European LNG indices). A widening spread in favor of LNG would make the deal more profitable for NextDecade, while a narrowing spread could erode returns.

Actionable insight – For market participants, a long position in Henry Hub futures (or a calendar‑spread positioning that benefits from upward moves) provides a natural hedge against the seller’s exposure, whereas a short‑term short hedge on the same curve can protect the buyer if they anticipate a price rally. Monitoring seasonal demand drivers (winter heating, summer cooling, storage inventories, and U.S. production trends) will help gauge the volatility envelope. If the Henry Hub‑indexed price begins to trade well above the historical average and the LNG‑to‑gas spread remains wide, the deal’s economics become increasingly attractive for NextDecade, suggesting a bullish bias on related LNG‑linked equities (e.g., NEXT) and a potential long‑short play between Henry Hub futures and LNG swaps. Conversely, a sustained low‑price environment warrants caution on the seller’s margin outlook and may prompt a shift toward credit‑risk‑adjusted pricing models.