New Fortress gives update on LNG projects

New Fortress Energy CEO Wes Edens outlined significant advances in LNG projects coming online and under construction in Jamaica, Puerto Rico and Mexico during the firm’s 3Q19 conference call on Tuesday. 

The updates on progress at multiple sites suggest the firm is nearing breakeven and may soon turn a profit, this despite a US$54.4mn net loss in the quarter and a trailing-12-month loss of US$68.1mn.

The New York-based firm, with a US$2.8bn market cap, announced 3Q19 revenue rising to US$49.7mn from US$28.4mn in the same period of last year “due to revenue generated from the Old Harbour terminal (pictured) and new commercial and industrial customer contracts coming online.”

Looking at the firm’s financial goals, Edens said, “The goal is very simple, we intend to continue to raise capital against assets, as they become operational and as they start to produce some cash flow, and do so in sufficient quantities for a yield that allows us to internally develop all of these projects that are on our board without having to mortgage more of our equity.” 

The CEO explained that the currently “modest” cash flow of the company was set to turn around in a matter of days with “first fire” now held at Jamalco (where the natural gas turbine’s combustion system first operates with natural gas as a fuel) and Old Harbour volumes set to set ramp up and its Puerto Rico facility (San Juan 5 & 6) due to come online and ramp up in Q4.

Edens noted the firm’s “illustrative” annualized operating margin goal for LNG operations from expected sales volumes of 2.6mn gallons/d (9,842m3/d) in Mexico, Puerto Rico and Jamaica and from the 54,000 gallons per day in its Miami facility would reach US$382mn by the end of 2020.

The executive explained that by “illustrative”, the firm describes the projection based on incomplete construction, and it is hoped that the progress of getting facilities online and starting sales moves even more quickly than projected. 

For 3Q20, the firm’s baseline forecast for committed volumes (expected sales volumes) were as follows: 419,000 gallons per day at Montego Bay, Jamaica; 760,000 gallons/d at Old Harbour, Jamaica; 878,000 gallons/d at Puerto Rico facility and 106,000 gallons/d at the Pichilingue plant in La Paz, Baja California Sur, Mexico.

By 4Q20, volumes increase to 424,000 gallons/d in Montego Bay and 455,000 gallons/d in Mexico, with the other sites holding level. 

Most recent developments:

Old Harbour Power Plant (operational)

• Run rate by year-end
• Offshore re-gasification terminal fully commissioned
• Power plant turbines operational and will likely consume more gas than expected

Jamalco CHP Plant (commissioning)

• Run rate in 1Q20
• Turbine “first fire” October 30, 2019
• Expected to produce power any day 

San Juan, Puerto Rico Facility (in construction)

• Run rate in 1Q20
• Marine works nearly finished and truck loading system installed
• Turbine conversion has started
• First 220MW expected to be completed by December 

La Paz (Pichilingue), Mexico (In construction)

• First turbine has been completed and is ready to ship to site
• Second turbine is almost complete
• First gas is expected in 3Q20

With respect to the 105MW La Paz facility, Brannen McElmurray, chief development officer, added during the call: “We think we’ll add a third turbine to that facility and increase the overall output to about 130MW.” 

That plant has political importance in Mexico, with state-run power utility CFE pressed to take action to alleviate debilitating power outages that occurred in the southern peninsular state this past summer. 

The Pichilingue facility is a key part of the high-level commitments made by the government to boost power capacity in the state in the coming years. 

Business outlook

Looking down the road, Edens explained that it is their goal to achieve an operating margin of between about US$1bn to US$3bn in 2022 once 10 terminals reach run rate, with target volume per terminal at 3mn gallons/d and an estimated margin of US$0.30/gallon. 

The company has identified 50 countries in need of terminals and 100 potential terminal sites worldwide with 10 core markets of interest. Beyond Puerto Rico, Mexico and Jamaica, other sites of interest in Latin America and the Caribbean include the Andes region and eastern Brazil.

Edens added they have a “substantial” backlog of development building into their new terminal pipeline, which he described as “very, very robust”.

He added New Fortress Energy is actively engaged in converting two large-scale memoranda of understanding into binding commitments “in the next 50-90 days” which they expect to total approximately 1.3mn gallons/d.

The firm further disclosed it is in discussion with 100+ commercial and industrial customers in Puerto Rico, Jamaica and Mexico.

Edens pointed to the company strategy of “demand aggregation” as the “lifeblood of business”, saying the firm is looking to “identify a place to build a beachhead, get a terminal built, make a reasonable return to enter a market, and then aggregate demand from other power users, small-scale commercial users, and then lastly [noting considerable potential promise] the transportation sector, shipping side to use those terminals.” 

In the presentation, New Fortress also stressed that their terminals help catalyze the rapid adoption of industrial gas-fired power, and move industry away from reliance on carbon-intense diesel burning.

“In 2019, our customers will reduce emissions by ~30%, the equivalent of planting 4mn trees,” noted the firm.