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Good morning, and welcome to the NextDecade Corporation First Quarter 2026 Investor Call and Webcast. (Operator provided instructions.) As a reminder, this conference is being recorded. And now I would like to turn the call over to Megan Light, NextDecade's Vice President of Investor Relations.
Thank you, and good morning, everyone. Welcome to NextDecade's First 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 Mike Mott, NextDecade's Interim Chief Financial Officer. Before we begin, I would like to remind listeners that discussion on this call, including answers to your questions, contain 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. 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. A definition of and additional information regarding these measures can be found in the appendix to our presentation. And now I will turn the call over to Matt Schatzman, NextDecade's Chairman and Chief Executive Officer.
Thank you, Megan, and good morning, everyone. Thank you for joining us today. The first quarter was productive across the NextDecade organization, and we're making solid progress on the key 2026 priorities that we introduced on our fourth quarter call. One of our highest priorities continues to be progressing construction at the Rio Grande LNG facility safely, on budget and ahead of schedule. Safety is ingrained in our culture and our work. In the first quarter, we achieved a low total recordable incident rate, or TRIR, of less than 0.1. I'm proud of both our team and the Bechtel team for continuing to progress construction at a rapid pace while maintaining high safety standards. We also continue to be within budget across all five trains under construction. Train 1 early electrical commissioning is underway. Phase 1 continues to track ahead of the guaranteed substantial completion dates for the EPC contracts, and we're making excellent early progress on Trains 4 and 5 at the site. Based on our current progress, Phase 1 is tracking ahead of the schedule reflected in our early volume guidance, providing a buffer to achieve the numbers we have provided. Our second key priority for 2026 is continuing to prepare our organization for commissioning, first LNG and the transition to operations. We've been advancing hiring, system implementations and process development ahead of first LNG. We've been rapidly hiring and expanding our team, and we currently have over 400 employees with the majority based in Brownsville. As part of our enterprise readiness efforts, we've made significant progress building the digital and operational foundation required for first LNG. Core enterprise platforms are starting to go live, and we've created a robust in-house integration capability that allows systems to exchange data and supports end-to-end business processes. This work positions us to scale efficiently, reduce operational risk and enter operations with strong governance, visibility and control across the enterprise. We're laser-focused on ensuring that the organization is prepared for introducing first gas into the facility in the second half of this year and producing the first LNG from Train 1 in the first half of next year. Our third key priority is to manage near-term exposure to LNG market margins through the sale of projected early LNG cargoes. As we mentioned on the fourth quarter call, early this year we began marketing early cargoes that we expect to produce in Phase 1 prior to the commencement of our long-term SPAs for Train 3. In February, we sold over 175 TBtu on a free-on-board or FOB basis with fixed liquefaction fees that are expected to achieve margins, calculated as the FOB sales price less our expected cost of natural gas feedstock and fuel, of over $3 per MMBtu. These sales reduced the Phase 1 early LNG production exposed to LNG market price fluctuations by 33%. Market margins have increased since the Iran conflict began. As we increase our visibility into expected early LNG production and gain additional assurance on the timing from Bechtel later this year and early next year, we expect to sell additional early volumes to further reduce our market exposure during our ramp-up period. Our final key priority for this year is advancing the development and permitting of Trains 6 through 8. Bechtel is in the process of performing a front-end engineering and design, or FEED, study for Train 6 and a third berth, and we expect to file the formal FERC application for Train 6 before the end of this quarter. Additionally, we've begun early commercialization efforts for Train 6, and we're seeing strong demand from potential customers for long-term volumes. I'd like to remind everyone that additional LNG supplies were needed in the early 2030s before the Iran conflict began, and demand from long-term SPAs is even stronger today. Construction at the Rio Grande LNG facility continues to progress safely, on budget and ahead of schedule. As of March 2026, Trains 1 and 2 are 67.8% complete. Train 3 is 44.2% complete and Trains 4 and 5 are 10.6% and 6.8% complete, respectively. Within these overall completion numbers, Trains 1 and 2 are functionally complete on the engineering and procurement front with the engineering of Trains 1 and 2 just over 98% complete and procurement just over 94% complete. Train 3 is not far behind Trains 1 and 2 with engineering over 90% complete and procurement over 80% complete. Since our last update, Bechtel has continued to make strong progress in construction of Phase 1 with work on Train 1 focused on piping, equipment installation, cable pulling, testing and system completions. The main cryogenic heat exchanger for Train 1 has also been successfully installed. Trains 2 and 3 made notable progress on civil works, piping, structural steel and equipment installation, and placement of the Train 2 compressor packages is underway. For Tanks 1 and 2, welding of the inner tanks is progressing and concrete roof placement has been completed for both tanks. Early civil works are progressing for Train 4. Site preparation activities are underway for Train 5 and production piling has commenced for Tank 3. Across the site, construction of permanent buildings is advancing, construction activities of the gas inlet area are ongoing, dredging activities for the berths and turning basin are substantially complete, and channel deepening is nearing completion. The Bay Runner pipeline has been under construction since last fall and is expected to reach in service in the third quarter of this year. Bay Runner is being constructed by Whistler LLC, a joint venture between WhiteWater Midstream, Enbridge and MPLX, and will be our primary pipeline capacity into the terminal for Trains 1 through 3. Early electrical commissioning of Train 1 continues, and we continue to expect first gas into the facility in the second half of this year and first LNG production from Train 1 in the first half of 2027. In early April, FERC approved our request to shift to a 24/7 construction schedule at the site, a transition that has been contemplated in the EPC contracts and will not increase our EPC or total project cost. The 24/7 format should facilitate Bechtel making continued progress ahead of schedule. We're currently tracking ahead of the schedule reflected in our early volumes and cash flow guidance, giving us some buffer for unexpected events during commissioning and start-up of the trains while still achieving the production guidance we have provided. We're supporting our goal of increasing our capacity at the Rio Grande LNG facility up to 60 million tonnes per annum by advancing the development and permitting of Train 6 through 8. As we mentioned on our highlight slide, the FEED study for Train 6 is underway with Bechtel. Train 6 will have the same design as Trains 1 through 5, and the FEED study will support our regulatory filings with FERC and give us a general idea of where we expect to land on cost for Train 6. We currently expect Train 6 to look a lot like Train 5 from a project cost perspective, adjusted for inflation. We are also preparing to file a formal application with FERC for Train 6 and a third berth before the end of the second quarter of this year. The current administration's emphasis on U.S. energy dominance as a national security issue, including last week's determination that expanding LNG capacity is necessary under the Defense Production Act, is expected to be helpful for the development of U.S. LNG, and we expect permitting new capacity to be smoother and faster under the current administration than prior ones. Additionally, the D.C. Circuit Court's reversal in our case in March 2025 and the Supreme Court Seven County case later last year have set precedents that will go a long way in limiting the ability of certain groups to tie up permits in court over matters that have been appropriately analyzed by FERC in its environmental reviews. The permitting and regulatory framework for LNG infrastructure during the current administration appears to be taking less time, which is very encouraging. It gives us confidence that our future trains will receive approval faster than our first five trains. We believe it is possible that we could receive our FERC permit for Train 6 as early as mid-2027, which could set us up for an FID in the second half of 2027, if we can also sufficiently commercialize and finance Train 6 during that time frame. We expect that an FID in the second half of 2027 would result in Train 6 coming online as early as 2032. As I mentioned earlier, we began commercialization efforts for Train 6 and we're seeing very strong demand from potential SPA counterparties. We believe that one of the main outcomes of the Iran conflict will be increased attractiveness of long-term U.S. LNG volumes, and we'll discuss that more in a few minutes. The potential demand we are currently seeing for Train 6 provides us with a sales pipeline that is larger than the capacity of Train 6 and places us in a strong position for the subsequent commercialization of Train 7 and 8. We're advancing development of Train 7 and 8 with a focus on determining the supporting infrastructure they will require and finalizing their location on the site. Train 7 and 8 will need flood control mechanisms such as a levee wall as they'll be outside the main levee around the site, and we're also evaluating potential tank and berth requirements. We continue to have the goals of permitting these trains during the current administration and commercializing them while they are in the permitting process. We currently have full ownership of Train 6 through 8, and we believe these trains could contribute significantly to future NextDecade distributable cash flow across a wide range of financing scenarios. This year, as we advance permitting and commercialization of Train 6, we're working on potential financing options with the goal of maximizing distributable cash flow on a per share basis. Since our last call, global LNG market dynamics have shifted significantly as a result of the Iran conflict. Closure of the Strait of Hormuz during March and April pulled approximately 14 million tons of LNG supply out of the market with capacity at Ras Laffan and Das Island shut in. Each month of continued shut-in will result in a loss of an additional approximately 7 million tons, and we expect the production ramp-up at Ras Laffan will take weeks, if not months. Based on public announcements, the two damaged trains at Ras Laffan totaling almost 13 million tons per annum of capacity are estimated to require between three and five years to repair. Also, it's estimated that expansion capacity in Qatar could be delayed by up to a year due to recent events. In total, a significant amount of LNG supply has been pulled out of the market between now and 2030, which we expect will tighten global balances. There's a lot we don't know today, including the full extent of the damage at Ras Laffan, the exact timing for production to return to the market and the ultimate impact of short-term demand destruction in price-sensitive markets, particularly in Southeast Asia. Before the conflict began, we expected the impending supply wave of LNG to spur extra-normal gas demand growth and additional gas infrastructure investments in developing markets over the next few years. Clearly, with less supply in the market currently, this will slow down. Longer term, we do not see a slowdown in demand for natural gas and in particular LNG. One very effective way for buyers around the world to acquire LNG at attractive prices is through long-term supply, and 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. Henry Hub pricing has decreased since the Iran conflict began and customers with long-term contracts out of the U.S. that are indexed to Henry Hub are currently able to deliver into Europe and Asia at levels below $8 per MMBtu. Long-term LNG supplies out of the U.S. have been a buffer against market price shocks, not only during the current conflict but also during the prior market spikes associated with the Russia-Ukraine war and weather-related seasonal demand spikes. Long-term U.S. LNG supplies have also been attractively priced relative to short-term supplies in tight market conditions like we have seen in the past two to three years. Since 2021, for example, a U.S. long-term SPA calculated at 115% of Henry Hub plus a fixed fee of $2.50 and shipping costs of approximately $2 would have delivered into Asia at an average of $8.83 per MMBtu. The JKM spot price over the same period was over $17.50, around double the long-term price, excluding the market spikes related to Russia-Ukraine in 2022. From 2023 to present, the example U.S. long-term SPA price averaged approximately $5 per MMBtu, lower than the short-term LNG price. Long-term Henry Hub-linked SPAs have also compared favorably to long-term LNG contracts linked to oil. Since 2021, long-term LNG contracts linked to Brent would have needed slopes below 11%, inclusive of any fixed adder, to beat the pricing of the most recent wave of long-term Henry Hub-linked LNG contracts out of the U.S. Historically, these Brent-linked LNG contracts have had slopes between 11% and 15% plus a fixed adder. Before the conflict began, we received strong indications of demand for long-term supplies out of Train 6, and demand for long-term contracts is even higher today. With a prolific and diversified natural gas resource in the U.S. and the favorable geopolitical environment, buyers can have confidence in U.S. supplies from a reliability, energy security and economic standpoint. We expect buyers to increasingly value long-term contracts out of the U.S., which will spur additional capacity growth in the market. And with Train 6 through 8 under development, we're in a very good position to provide a meaningful amount of additional capacity to meet that demand. Now I'd like to turn it over to Mike to talk about our financial priorities. Mike?
Thanks, Matt, and thanks to everyone for joining us today. Matt has just walked you through key construction, operational and strategic priorities for 2026. Now I will spend a few minutes on our financial priorities for the year. First, we are focused on actively managing debt at the project level. Specifically, we plan to continue opportunistically refinancing portions of our project level credit facilities in the debt capital markets. Today, we have over $9 billion of credit facility commitments for Phase 1, about $3.8 billion for Train 4 and roughly $3.6 billion for Train 5. Over time, we expect to refinance each of these bank facilities into a mix of bullet and amortizing debt securities. We expect to refinance the full term loan balances before the commercial operation dates for Trains 3, 4 and 5, respectively. Since Phase 1 FID, we have refinanced more than $1.85 billion of Phase 1 bank debt, and we expect to continue taking advantage of market opportunities this year. Importantly, this approach allows us to better manage project level maturities by spreading them out over time and thoughtfully balancing bullet and amortizing structures. Our second financial priority is evaluating equity financing options for Train 6. As Matt mentioned, we are targeting an FID in the second half of 2027, subject to achieving permitting, commercialization and financing prerequisites. This timing comes before we expect to be generating meaningful operating cash flows that could fund our equity requirements for Train 6, requiring us to look to other financing alternatives for this capital. We expect to contract a high percentage of Train 6 capacity, which could support project-level bank facilities covering up to approximately 75% of total project costs. Maximizing project level debt lowers the overall cost of capital and meaningfully reduces our equity requirements. Based on current SPA pricing, early estimates of Train 6 costs and the current interest rate environment, we expect the project to be highly accretive to NextDecade's distributable cash flow. As a result, all else equal, we will seek to both preserve our high economic interest in Train 6 and select the equity funding options that are most accretive to our distributable cash flow on a per share basis to maximize value for our shareholders. The FinCo bank facility that will be used to fund a portion of our equity commitments for Trains 4 and 5 remains a very attractive source of capital. It is priced at only about 150 basis points over our project level bank facilities and provides significant flexibility through delayed draws and penalty-free prepayments. We believe additional FinCo capacity will be available to help fund a portion of Train 6's equity needs. Beyond that, we are actively evaluating a range of alternatives to fund the remaining Train 6 equity requirements. We will continue working through these alternatives over the course of the year with a focus on finding the most accretive outcomes, and we expect to share more detail with you later this year as these options take shape. Today, we are reaffirming our early volume and cash flow guidance, along with our steady-state outlook. This slide provides a high-level summary highlighting the key points. You can find more detailed assumptions and supporting slides in the investor presentation we posted earlier today. Let me start with a discussion of early volumes. We continue to project total LNG production of approximately 3,800 TBtu from early cargoes beginning with start-up of Train 1 in 2027 and extending through first commercial delivery to our long-term SPA customers under Train 5. Importantly, that total includes about 1,275 TBtu of LNG production in excess of what's currently contracted under long-term SPAs. As we discussed on our fourth quarter call, earlier this year, we sold forward more than 175 TBtu of those early volumes on an FOB basis. These sales carry fixed liquefaction fees and are expected to achieve cargo margins of more than $3 per MMBtu calculated as the FOB LNG sales price less our expected feed gas and fuel costs. As a result, we have reduced our exposure to LNG market pricing on early Phase 1 volumes by roughly 1/3. As Matt mentioned earlier, we expect Bechtel to deliver our trains ahead of the guaranteed substantial completion dates. As a result, the majority of the uncontracted volumes reflected in our early production guidance are expected to be produced after substantial completion and prior to DFCD under the SPAs for each train. As construction continues to progress, our confidence in these projections remains very strong. In fact, Bechtel is currently tracking modestly ahead of the schedule assumed in our guidance, which provides additional buffer and creates potential upside for early volumes that are not currently reflected in our projections. We expect the cash flow generated from sales of these early volumes to be used primarily to pay down a portion of FinCo and SuperFinCo loans that support our equity commitments for Trains 4 and 5. Our early cash flow outlook guidance remains unchanged. Under an assumed margin of $5 per MMBtu on volumes in excess of our contracted SPAs, we project early production could generate approximately $2 billion in NextDecade share of distributable cash flow at the Rio Grande LNG project level. At a $3 per MMBtu margin, we project approximately $1.2 billion of distributable cash flow. There is potential upside to both scenarios driven by continued schedule strength, the pace of ramp-up to full production, the potential for production above nameplate capacity and possible additional market price upside. Turning to leverage and capital structure. On our last call, we introduced a steady-state leverage target of 3 to 3.5x NextDecade level debt to adjusted EBITDA. We believe this target is appropriate given the long-dated, highly visible cash flows created by our highly contracted portfolio with high-quality creditworthy customers. In the $5 per MMBtu early volume margin scenario, we expect NextDecade level debt to fall within that target range as we move into steady-state operations. In the $3 per MMBtu scenario, we would expect to pursue additional balance sheet optimization. In that case, we would consider contracting approximately an additional 2 million tons per annum under long-term SPAs across Trains 4 and 5. That would increase our 5-train portfolio to roughly 90% contracted, allow us to maximize project level debt, reduce overall equity requirements for both NextDecade and our partners and ultimately reduce the amount we expect to draw under the FinCo loan, bringing NextDecade level debt back into our target range for steady-state operations. Because we contributed the net proceeds from the SuperFinCo term loan into Trains 4 and 5 at FID, we do not expect any additional NextDecade equity funding obligations through draws on the FinCo loan for those trains for at least the next 2 to 3 years. This gives us a long runway to determine the optimal level of long-term contracting. And as Matt mentioned, we are seeing very strong demand in the long-term contracting market today. Moving our discussion to steady-state operations. We are also reaffirming our steady-state guidance today. In our base case scenario, assuming $5 per MMBtu market margins, both for early volumes and during steady state, we project annual NextDecade distributable cash flow of approximately $500 million following DFCD for the Train 5 SPAs and prior to our economic interest flip for Trains 4 and 5 in the mid-2030s. After the flip, beginning in the mid-2030s, we project annual distributable cash flow of approximately $800 million. In our additional pricing scenario, assuming $3 per MMBtu margins on early volumes, $5 per MMBtu margins on steady-state volumes and an incremental 2 MTPA of long-term SPAs across Trains 4 and 5, we project annual distributable cash flow of approximately $400 million prior to the economic interest flip for Trains 4 and 5, which we would expect to occur a couple of years later than in our base case. In this scenario, we project post-flip distributable cash flow of approximately $500 million annually. As with our early volume outlook, there are potential upsides to our steady-state guidance, including continued schedule improvement, ramp-up timing, production above nameplate capacity and ongoing operational efficiencies. Thank you again for joining us today. With that, we'll open the call up for questions.
分析師問答
(Operator provided instructions.) The first question is from Sunil Sibal from Seaport Global Securities.
So I wanted to start off on your request for additional work hours at the site. I was curious, is that kind of based or baked into your base construction schedule? Or does that kind of accelerate that from the base schedule?
Thanks for the question. The 24/7 schedule was contemplated in the original EPC. It was an option and something Bechtel could call on if they wanted to use it. I think that's what they're doing. They want to maintain the current schedule and they want the flexibility to utilize 24/7, and that's what we requested at FERC. How they end up utilizing it and how many people they actually use is up to them. But I wanted to make sure it was clear to the market that this is not an incremental cost to us; it was already baked into the EPC. I think it's a positive sign that shows that although we are already ahead of schedule, we haven't even utilized all the potential capabilities of the 24/7 schedule to further accelerate. I'm very optimistic that Bechtel is going to remain ahead of schedule at this point, and by adding the 24/7 optionality, that gives us even more confidence.
Okay. And I think you mentioned DPA in your prepared comments. So I was curious what seems like that's primarily related to accelerated permitting or there are other kind of potential levers that gives you or other LNG developers in your view?
Sorry, I missed the first part of that, referencing what...
The Defense Production Act, the invocation?
Yes. Yes. I think we'll have to see exactly how this impacts the timing. But clearly, what we've seen recently are some changes in the way FERC has handled some of the current requirements such as the prefiling waiver for VV, which I view as very positive. That may only apply in certain circumstances. It's something that we're currently in discussions with FERC on, and we're waiting to hear additional guidance. But clearly, the administration's memorandum regarding the importance of LNG, along with other energy infrastructure in the U.S. to energy security during this period of time, especially with LNG for our allies, I think is a very positive sign and suggests that we're going to see these things move very rapidly relative to even what we've seen in the past couple of years under the first couple of years of the prior administration.
Got it. And then just a clarification on some of your comments. I think you mentioned that, as far as Train 6 is concerned, construction cost is kind of in line with Train 5 plus inflation. You also commented that, based on where supply and demand for long-term contracts stands, that market has strengthened. So I'm curious: when you think about your project, say Train 6, with these two factors interplaying, do you see improving returns on investment on the project versus where things were for Train 5 last year? And how are you seeing demand for additional cargoes — is it primarily Europe or Asia? Any color on that from your discussions so far?
Yes. On the second part, you're talking about the long-term demand? Are you talking about for the excess cargo? You said additional cargoes. You mean for long-term SPAs? Or are you talking about for the short-term cargo sales?
Actually, both.
Okay. All right. So first off, the economics for Train 5 were extremely good, and we expect the economics for Train 6 to track closely to the economic outcome for Train 5, again, adjusted for inflation. And we still have to price up the EPC contract. And we likely won't do that until we're confident that FID is within months of that. And it's all dependent on how long we can get price validity, but it's tended to be about 90 days or so at most. But inflation, we have to monitor it. It's inflation, it's interest rates are the 2 main factors that are going to impact the project cost, inflation on the EPC, obviously, interest rates on the financing costs and interest during construction. Both of those appear to be okay right now, but we'll have to see. We've had some early discussions with equipment providers for the main equipment. I've been very pleased, very optimistic that we're not currently seeing the same sort of constraints that we saw back last year as far as timing. But we're not planning to FID until second half of next year. So a lot of things can happen between now and then. But at least in the interim, what we're seeing right now, I should say, things are tracking, I think, very positively. As far as the demand for the LNG, I think it's the same group that we saw for 4 and 5. It's Asia, Middle East, not seen as much out of Europe as far as long-term contracting, but still a lot of interest from major intermediaries that sell into Europe and have markets into Europe. But Asia and I think Middle East, especially look like they're going to be players in the next phase of RGLNG's expansion. In the shorter term, I'd say it's a combination of Europe and Asia.
The next question is from Wade Suki from Capital One.
Just thought I'd dovetail a bit on Sunil's question and expand on cost inflation. I know we may not get definitive word until next year, but with labor running a little hot, could you speak to the various equipment components, electrical items, and other factors as you think about Gulf Coast projects progressing? With rebuilding and reconstruction hopefully moving forward for all the damaged facilities, I'd appreciate your view on those items as you see them today.
Yes. Inflation appears, as you've seen in the most recent numbers, to be heating up a little bit, but over time has been relatively modest. We would expect the EPC cost to go up by at least inflation. A large part of our EPC, since we're stick-built in the U.S., is labor. Labor tends to be a little bit higher than inflation, although this past year it wasn't much above inflation. We monitor this closely, not only for the EPC but for our own employees' costs each year, and we want to be fair. So right now it's not a major worry, but we'll see how things progress over the year. As for equipment, I've been pleasantly surprised so far by the feedback we've received from our major suppliers regarding expected availability for equipment for Trains 6, 7 and 8 and the timing of deliveries. As for cost, that will be determined once we price everything for the EPC contract. I do expect electrical equipment to continue to be in high demand, not just for LNG but also for data center build-out and power generation. We'll see how that comes in. I would expect any cost inflation we see will likely be offset by price contracting. Again, we're not seeing the same kind of price increases that we saw after the pandemic prior to Phase, which was fairly substantial. As you recall, between Phase 1 and Trains 4 and 5 we had about a 10% increase over a two-year span, so that ran closer to 5% per annum as opposed to the current inflation. That tracks pretty closely with inflation, and obviously some equipment, especially turbine orders, got really hot and became constraints on schedule and delivery of the project.
Great. Appreciate the color there. You kind of walked right into my next question, Matt, just to what extent these might kind of influence, if at all, long-term SPA pricing. And always appreciate your broader thoughts or insight, whatever insight you could give us on what you're seeing out there with regard to kind of leading-edge rates. That would be great. Any color would be awesome.
Yes. Look, I think the market for LNG is between $2.50 and $3 on a fixed-fee basis, roughly 150% of Henry Hub. I think returns will depend on whether you are running a brownfield or a greenfield project. Greenfield projects need higher contracting prices to get off the ground. If they undercut and compete with brownfields like us, they will have to get upside through expansion. If they lack expansion capability, it will be a challenging market from an equity return perspective. Clearly, as you have seen with our Train 4 and 5, we tend not to be on the lower end of the market. We are in the mid-range, closer to the true market price from a bid-offer perspective. I expect we will be at or close to that level for Train 6, 7 and 8.
The next question is from Craig Shere from Tuohy Brothers.
Is your nat gas sourcing team fully in place now? And you've talked about hedging out some of the initial commissioning cargoes and that you expect $3 plus netbacks net of your feedstock costs. Could you, by the end of the year, make any more formal announcements, not just on the sales side, but on the purchase side and what you're doing there?
Yes, that's something we'll take into consideration. We've been active on the supply side for the long term and have been working on that, and I expect we should be able to give an update on what we've done on a long-term basis. In addition, some of our customers have to give us notice before the end of the year about their willingness to sell us gas under long-term contract prices. So either later this year or maybe in the first quarter, Craig, we can provide some guidance as to what we've arranged on a one-year-or-greater basis. I think that will be a good update, so thanks for the steer. As for the team, they're coming together nicely. We already had a gas supply team in place, but we're building out the short-term trading and optimization team. They'll be managing our gas supply for us, and we expect to have them fully in-house before we need to start introducing gas into the facility later this year.
Great. You mentioned this 24/7 construction that Bechtel formally requested, and that it's their discretion how to use it. Could you speak to their incentives on a per‑train or per‑FID basis? They may, depending on how well things are going overall, not necessarily have additional profit or incentives to accelerate beyond where they're already tracking. But when you think about it, with the project already at five trains and moving on to six and more, perhaps even if they slightly increase costs that you don't have to pay for, the NPV of building out six to eight trains over time could be higher and they would still be incentivized to maximize this under most conditions. Could you opine on that?
I think what I'd say simply, Craig, is that, without getting into the details of the commercial arrangement, which I don't believe we have disclosed, Bechtel is highly incented to deliver substantial completion of each train prior to the guaranteed substantial completion date, and there is value that I think can more than compensate them for an increased labor cost if they choose to use it. There are guarantees as well. At this point, we've already said and guided that we're nowhere near that guaranteed substantial completion date as far as the delivery of the trains. But they want to make sure that they achieve completion prior to the guaranteed substantial completion date because if they went past it, which, again, we're nowhere in this realm, there are key pole mechanisms and damages associated with that. So there are a bunch of different incentives for them to ensure that they deliver the trains on schedule, and there are even more incentives for them to deliver them ahead of schedule.
The last question is from Alexander Bidwell from Webber Research.
Just wanted to, I guess, piggyback off some of the prior questions around Phase 1 construction. With the projects tracking ahead of schedule, could you walk us through the path to maintaining that momentum as well as any avenues that could further accelerate the project schedule?
Yes. I think it's, importantly, execution. We don't currently have any concerns about equipment and supply chain. That appears to be going very well. So we haven't seen any major impact associated with the conflict in Iran impacting that, which is good to see. I think the key here is we'll continue to provide you updates each quarter. You will see the progress from the standpoint of the construction. You note that engineering is effectively complete. Procurement is effectively complete for Phase 1 or close to it. So it really boils down to execution at the site and building it. Trains 4 and 5 are further out in the future, but you should expect to start seeing steel foundations being finished up this year and hopefully steel erecting at the trains. We've already talked about the pilings for Tank 3. I hope to see that progress for Train 4 as well this year. But I think it really boils down to execution. There's really not one thing that we're specifically looking for. As far as the construction, it's just ongoing, continuing to do and execute what Bechtel has been able to do so far. The next phase, though, I think, is of equal importance, and that is the commissioning phase. You'll see gas being introduced in the facility this year. You should expect to see that. We'll be working on the warm side of the facility there. We'll be working on the flares, and we'll be working on the gas processing side of it. The cold side you shouldn't expect to see until next year when we start running compressors and start testing, and then start hopefully producing LNG, as we said, in the first half of 2027. We haven't provided any specificity on which month that's going to be. I hope to be able to provide some additional guidance on that later this year as we continue to progress with Bechtel and we get a better indication of when that's going to occur. And then, of course, once we get through the commissioning process, which I think I've told the market that we're doing with Bechtel, our operations team is seconded into Bechtel for the commissioning so that we have a seamless handover at substantial completion. Our team will have already worked on operating the facility during the commissioning with Bechtel, which we think is best practice. That will happen at substantial completion, which again is tracking ahead of guaranteed substantial completion, which we have guided is the fourth quarter of next year. So those are the key components. We've been very, we believe and continue to try to be conservative in our guidance to the market because this is our first train. We've been around the block on this and other projects. We know how these things work. So far, everything has gone extremely well. We would anticipate based on how well Bechtel has done building the facility that we expect the commissioning and handover to go extremely well also. But we're not planning for the best while hoping for the best. We're going to plan for expected disruptions as you typically see when you're starting a facility, especially a new one. We will learn lessons from that. And then we would expect Trains 2 and 3 to go even smoother because we'll learn from Train 1 commissioning and startup. So I think these are the key components. And again, we will continue to update the market as we can with more details on when Train 1 is going to start up, when we expect to produce first LNG and when we expect to load our first cargo, and then the spread of timing between Train 1 and Train 2, and Train 2 and Train 3.
All right. Appreciate the color. And then just, I guess, real quick on the shipping side. I was wondering if you could provide any additional color on your plans around shipping capacity. I understand you guys have some vessels set to be chartered in, but is there any plans to expand or add additional vessels to handle the merchant book?
Yes. We have five vessels under charter, three long-term charters that are being used for our Guangdong DES deal. We've chartered those from Dynagas. There are three new vessels — in fact, the first one just sailed yesterday from the Hyundai shipyard. I was there on Tuesday and toured the vessel. It's a phenomenal piece of kit that Hyundai built for Dynagas and that Dynagas designed. We have two more of those coming this year. And then we have two more vessels that we've subchartered. All of these will be used for our commissioning process for Train 1, and then we'll start utilizing the larger ships that are being built for us to deliver to our long-term market in China. We will likely run a DES-type business for our excess cargoes. We believe that being able to do a delivered-ex-ship business for our excess volumes provides additional flexibility and optionality and should increase the value. So we do anticipate chartering more ships on a short-term basis for Phase 1 volumes above the firm volumes that we've already sold. And then for Train 4 and 5, we are looking at additional capacity potentially on a longer-term basis because, as you know, we haven't sold all of our firm capacity out of those trains. However, as Mike mentioned, should we decide to sell more of that capacity a year or two from now, depending on how the short-term market goes, that may reduce how much capacity we would need on a longer-term basis. So we're going to be very mindful of that and make sure that we don't overcontract capacity before we need it. But we will be chartering more ships, simply put.
That concludes our call today. Thank you for joining and for your interest in NextDecade.