Saudi Aramco and the Abu Dhabi National Oil Company are investing in U.S. liquefied natural gas projects, signaling their confidence in long-term gas demand and ambitions to become global gas players. These deals reinforce the commercial appeal of U.S. LNG and suggest that Gulf national oil companies represent a new pool of capital for global gas investment. It is notable that some of their first forays into international LNG have occurred in the United States, especially in a period of shakier policy support in Washington for LNG exports. The deals suggest that Washington’s relations with Riyadh and Abu Dhabi are improving.

U.S. LNG Deals

In June, Saudi Aramco announced two U.S. LNG deals. It signed a 20-year nonbinding offtake deal with NextDecade for 1.2 million tons per year (mt/y), to be supplied by proposed Train 4 at Rio Grande LNG. And on June 26, Saudi Aramco signed a heads of agreement with Sempra for a 20-year sales and purchase agreement for 5 mt/y from the proposed Phase 2 expansion of Port Arthur LNG. Saudi Aramco could also acquire up to a 25% equity stake in Port Arthur Phase 2. The first phase of Port Arthur LNG, now under construction, includes two trains with capacity of 13.5 mt/y, and Phase 2 could double this amount with another two trains. Saudi Aramco billed the nonbinding deal as “a major step in Aramco’s strategy to become a leading global LNG player.”

On May 20, ADNOC announced an 11.7% equity investment in Phase 1 (Trains 1 to 3) of Rio Grande LNG, a NextDecade-operated project in Texas with planned capacity of 17.6 mt/y. ADNOC acquired its stake through the existing equity holding of Global Infrastructure Partners, and the company could take an equity stake in proposed Trains 4 and 5 at Rio Grande LNG, subject to a final investment decision for the project expansion. ADNOC also announced a preliminary 20-year offtake agreement for 1.9 mt/y from proposed Train 4 at Rio Grande LNG. The partners called the deal “ADNOC’s first strategic investment in the US.”

Other International Gas Investments

Overseas gas investments by Saudi Aramco and ADNOC are not restricted to the United States. In September 2023, Aramco acquired a $500 million stake in MidOcean Energy, an investment fund of Global Infrastructure Partners that includes several LNG industry veterans. MidOcean Energy holds stakes in various LNG projects in Australia and Peru. ADNOC is similarly on the hunt for global gas investments, as part of a broader overseas investment campaign. In May, the company acquired a 10% stake in Mozambique’s Area 4 concession in the Rovuma Basin. Area 4 includes the 3.5 mt/y Coral South floating LNG facility (which could be expanded to 7 mt/y) as well as a planned 18 mt/y onshore liquefaction plant. ADNOC’s new partners in Mozambique include several LNG industry heavyweights. Since 2023, ADNOC has also invested in overseas gas exploration and development assets in Azerbaijan and the eastern Mediterranean.

These investments are quite new for Aramco and ADNOC. Traditionally these companies have concentrated on domestic oil and gas projects and restricted their overseas investments to downstream and petrochemical assets that help them to lock up demand and solidify their market access. In contrast, global LNG is a new frontier. ADNOC is a minor player in LNG, with existing production only at the three-train, 5.8 mt/y Das Island facility in Abu Dhabi. Saudi Arabia’s Master Gas System is one of the world’s most extensive, with 19.1 billion cubic feet per day in processing capacity (Aramco produced 10.7 billion cubic feet per day in 2023), but Aramco has not invested in gas overseas. So, why LNG and why now?

Global Gas Ambitions

A few factors underpin the new focus on LNG. Aramco and ADNOC are confident about the long-term role of natural gas, keen to build on integrated gas developments at home, eager to bolster their energy trading business, and amenable to big countercyclical investments.

Aramco and ADNOC will remain advantaged oil producers thanks to their large resources and low production costs – but like other national oil companies, they are adapting to the energy transition and natural gas now features prominently in their long-term plans. Both companies believe gas demand will be resilient for decades to come, especially in Asia. Aramco labels natural gas a significant growth market, and ADNOC calls gas and LNG investments part of its “portfolio of lower-carbon energy solutions to enable the energy transition.”

Both national oil companies have a renewed focus on domestic gas projects, with some new linkages to international markets. Aramco is targeting a 60% increase in sales gas production by 2030 (over 2021 levels) and recently awarded $25 billion in gas development contracts. Nearly half of this amount relates to the Jafurah unconventional gas project, which the company hopes will produce up to 2 billion cubic feet per day by 2030. Natural gas dominates power generation in the Gulf states, but Saudi Arabia still uses substantial oil to generate electricity, especially to meet peak summer demand. By expanding its Master Gas System, Aramco aims to provide more gas to the power sector and industrial consumers, phasing out direct crude burn in power generation and freeing up crude oil for exportation. As Aramco’s gas-related capital expenditure rises, production increases create new options and should help boost export revenue.

ADNOC is a much smaller gas producer than Aramco but is already an LNG exporter from its Das Island facility. The United Arab Emirates also imports LNG, usually to meet summer demand, and imports gas from Qatar via the Dolphin pipeline. In the past few years, a drive for gas self-sufficiency led Abu Dhabi to invest heavily in domestic gas exploration. Projects under development are technically challenging and expensive, including ultra-sour gas, offshore gas cap projects, and unconventional gas developments. But new partnerships, hefty spending, and exploration success have improved Abu Dhabi’s gas prospects. Deploying nuclear energy and more renewable energy in the power sector in the UAE will free up natural gas for industrial use as well as expanded exports. In June, ADNOC took a final investment decision on the two-train, 9.6 mt/y Ruwais LNG project, and it recently awarded equity stakes to BP, Mitsui, Shell, and TotalEnergies.

Aramco and ADNOC also want to bolster their natural gas trading capacity. In the past few years, commodity trading profits have soared, including in integrated gas. National oil companies want a piece of the action, and several in the Gulf have established or expanded trading desks. Building a portfolio of overseas equity investments is not necessary to build a gas trading business, but such investments provide new partnerships and help companies learn the business.

To develop LNG portfolios, the United States is a logical starting point. Compelling factors include exposure to Henry Hub gas indexation – the leading benchmark price in the deep, liquid U.S. gas market – and to flexible volumes, as well as the sheer number of investment opportunities on offer. The United States is already the world’s largest LNG producer, with capacity set to nearly double by 2030. Most LNG supply growth in the next two decades will come from the United States and Qatar. Since the latter is off-limits to investment from its neighbors, the United States looms large – and there are many competing projects to gain a foothold in the market.

Finally, these companies have the money to make countercyclical moves. So far, this has been a slow year for project final investment decisions, after a bumper year of project go-aheads in 2023. A wave of new LNG supply will be arriving between 2026 and 2030, but Gulf national oil companies are betting that the world will need still more supply in the decades to come.

Significance for Global LNG and U.S. Ties

The Aramco and ADNOC deals in the United States are notable for several reasons. First, they made these moves despite uncertainty over the outlook for U.S. LNG. In late January, the administration of President Joseph R. Biden Jr. halted new approvals of LNG exports to nonfree trade agreement countries. The “pause” in approvals was designed to address concerns over the climate, environmental justice, and domestic price impacts of the U.S. LNG export boom since 2016. The U.S. Department of Energy is now reassessing how it evaluates these questions in issuing export authorizations. The results of its study are not expected until after the November presidential election. Several projects that were aiming for final investment decisions this year are now in limbo, with prospective buyers uncertain about their start dates. In this context, the Aramco and ADNOC investments show that global oil and gas companies are still willing to do deals. It is a welcome signal for the U.S. gas industry.

Second, Aramco and ADNOC are an emerging source of capital for global gas. To project promoters, Gulf national oil companies offer investment capital and gravitas. Their equity investments boost project viability, and their offtake agreements help projects to unlock financing and move toward final investment decisions. Many proposed U.S. LNG projects are vying for investors and buyers. With European end-users reluctant to sign long-term LNG deals, and with buyers in mature markets such as Japan and South Korea contemplating long-term demand uncertainty in their home markets, the pool of traditional investors is changing. Aramco and ADNOC are stepping into the breach. Investment bankers hawking gas assets will have them on speed dial.

Finally, these national oil companies clearly feel comfortable making big U.S. energy investments, suggesting that relationships with Washington have improved. In the past, big U.S. oil and gas deals by Middle Eastern companies may have attracted political attention, and possibly calls for a review by the Committee on Foreign Investment, an interagency government body chaired by the U.S. secretary of the treasury. So far, these investments have flown under the radar. Perhaps a newly export-oriented domestic oil and gas industry is more open to foreign capital and partnerships, or perhaps there is still risk of a backlash. In any event, it is striking that these companies seem unbothered about investment risks. The transactions suggest that Saudi Arabia and the UAE are feeling more confident about the long-term prospects of the United States as a global oil and gas player and that tensions between Washington and the Gulf Arab states have diminished since 2022.