New Fortress eyes new frontier for LNG growth

New Fortress Energy, NFE, the company that fuelled Jamaica’s shift towards liquefied natural gas, this week announced plans for a similar transition in Puerto Rico.

The American company also plans to raise cash in Brazil via an initial public offering of shares on the market.

“We expect all oil and heavy fuel oil power on the island to be retired. Then the island would be powered by natural gas and supplemented by solar and battery. And that will be Puerto Rico’s future,” said Brannen McElmurray, New Fortress’ chief development officer, on an earnings call hosted by the company.

“Our business is perfectly positioned to capture this growth. Our job is to drive that transition as fast as possible. What is unique about Puerto Rico is that there is complete alignment between our strategy, public policy, and the sheer economics of what will happen. This is simply a question of time and to convert these cash flows to long-term durable earnings that increase the value of our franchise.”

New Fortress increased its foothold in Puerto Rico when in 2022 the US government needed to quickly install emergency power to offset the fallout from the hurricane-damaged grid. Puerto Rico is a territory of the United States.

The Federal Emergency Management Agency, better known as FEMA, was mandated to respond to the island’s needs and New Fortress was selected to build out 425 megawatts of “fast power” on two sites in 120 days.

“Both projects were viewed as incredible successes from our side, the federal government’s side, Puerto Rico’s side, and the rate-payers’ side,” said McElmurray.

Those contracts were for two years with the US government. In March of this year, the contract was adjusted, such that the government would buy the power plants from New Fortress. In turn, New Fortress will supply gas to the plants.

The deal is still under negotiation and could result in New Fortress gaining US$1 billion in cash for the amounts owing to it. The enlarged gas deal would see NFE increase its supply fourfold to Puerto Rico from 25 trillion British thermal units to 105 trillion BTUs.

In the long term, NFE expects to grow its gas to 300 trillion BTUs with the transition from fossil fuel to LNG and renewables over time. Currently, natural gas fires 1.0 gigawatt of the 3GW grid. In the short term, an additional 750MW of power will be added in that country, according to New Fortress.

In Jamaica, LNG fuels two-thirds of the country’s electricity grid, with the other third being fired by heavy fuel oil and renewables. New Fortress began supplying LNG to Jamaica in 2016, with power utility Jamaica Public Service Company as its first client. At the time, the world was emerging from a period of oil price volatility.

In 2014, crude traded beyond US$100 per barrel; at that time LNG prices also spiked, but at a lesser level. The start of the pandemic led oil prices to plummet, and went below zero at one stage on the futures market. This meant that suppliers were compensating buyers to hold the product.

In 2022, LNG prices spiked due to the war launched by Russia against Ukraine, which impacted gas supplies to the wider Europe. It resulted in LNG’s monthly average prices spiking to US$8.80 per million BTUs in August 2022, but they have since waned considerably. Last month, natural gas prices were around US$1.60 per million BTUs.

New Fortress expects LNG prices to hover around US$2.25 over the next four years.

In Brazil, the company has two terminals, with an additional 2.2GW of power coming over next two years. Another 8GW will be auctioned by that country later this year, creating more opportunity for New Fortress.

“We are now in the middle of the process of thinking how to bring this value to shareholders. One of the things includes bringing in a partner to buy a piece of the business. To return capital to the original investment and also to evaluate the value the business,” said New Fortress CEO Wes Edens on the earnings call.

“It will culminate this summer with an attractive valuation, and provide liquidity back on our original investment. We expect to file this company for an IPO by summer, in July or August,” Edens said.

In the March quarter, New Fortress reported core operating earnings of US$340 million, compared to US$440 million a year earlier. Net profit totalled US$54 million for the period, down from US$150 million a year earlier.

“We think the value proposition to investors is tremendous; and to us. There’s huge growth opportunity and value for shareholders,” Edens said.

business@gleanerjm.com