New Fortress Energy Inc.'s move to acquire Golar LNG Partners LP and Hygo Energy Transition Ltd. represented a bet by the private company on increasing natural gas demand in Brazil and a play for what analysts see as a growing market for investments in infrastructure to supply developing economies with lower-carbon fuels.
The combined $5 billion deal, one of the first big M&A announcements in 2021, netted New Fortress four new LNG import terminals. One of those terminals is active, with the other three in various stages of development. But that will nearly double the LNG import terminals in New Fortress' portfolio. The company has five others — two in Jamaica, one in Puerto Rico, and two in development in Mexico and in Nicaragua. By buying Golar LNG Partners, New Fortress also acquired interests in other LNG projects around the world, such as the Hilli Episeyo project in Cameroon.
"New Fortress has evolved into what amounts to a frontier state energy transition specialist," Michael Webber, an independent LNG analyst and managing partner at Webber Research & Advisory. "That could be LNG, it could be hydrogen — and that's one of the reasons their stock is so strong. They are very much on the front foot of leaning into finding greener solutions and more attractive solutions in frontier states. ... They've expanded their quiver of options to offer."
Shares of New Fortress Energy closed at $56.54 on Jan. 13, a slight drop from the day before, according to S&P Global Market Intelligence data. But the company's share price has more than doubled since early September 2020.
The Hygo Energy acquisition announced Jan. 13 had an estimated $3.1 billion enterprise value and a $2.18 billion equity value. With Hygo, New Fortress will acquire three operating floating storage and regasification units — two of which have 1,200 MW of power in advanced stages — and a 50% stake in a 1,500-MW power plant in Brazil. The deal came about four months after Hygo, a 50-50 joint venture between Golar LNG Ltd. and the North American private equity firm Stonepeak Infrastructure Partners, pulled an IPO following allegations of corruption against its then-CEO, who denied wrongdoing.
The Golar LNG Partners acquisition had an estimated $1.9 billion enterprise value and $251 million common equity value. New Fortress will own the partnership's six floating storage and regasification units, four LNG carriers, and a 50% stake in the first and second trains of the floating liquefaction vessel Hilli.
"When you really look at it, it cleans up Golar Partners GMLP, which New Fortress is also buying. New Fortress is able to use their strong equity currency to expand their footprint and buy a really nice business in Brazil. And Golar was able to get better value for the business," Webber said. "It genuinely seems like it makes sense."
The deal could also support greater shipments of U.S. LNG to Brazil, analysts said. Besides its import terminals in Latin America, New Fortress also owns a small LNG export terminal in Miami, Florida. The company is also developing an export terminal proposed along the Delaware River in New Jersey. That project has faced significant opposition from environmental groups. So, too, has the company's LNG import terminal in Puerto Rico, which is at the center of a high-stakes battle over whether the developer built it without first securing the necessary authorization from the Federal Energy Regulatory Commission. FERC is scheduled to make a decision on that issue on Jan. 19.
New Fortress did not respond to a request for comment. In a statement, New Fortress touted the deal as making the company the leading gas-to-power company in Brazil and advancing the company's efforts to accelerate the energy transition.
Brazil is heavily reliant on hydropower, which has limited room for growth, and the country is thirsty for new electricity generation sources. Brazil is expected to grow its LNG imports in the coming years. Much of the nation's population and power infrastructure development are along the coast — dynamics that support LNG imports, Stifel Financial Corp. analyst Benjamin Nolan said in an interview.
"At the same time their absolute levels of power demand are going up, they are trying to get rid of some of this less efficient, more polluting sources of power," Nolan said. "They are also going to be growing their wind and solar. But LNG is a good solution that can be applied in a big country."
Nolan described the acquisition as a growth-oriented move by New Fortress, which has a "built in stepping stone for larger, more expansive operations" in other regions through Golar Partners infrastructure outside of Brazil. The deal also provided an exit for Stonepeak from Hygo and left Golar $950 million worth of New Fortress shares, he said.
"It was a pretty good price for Golar and Hygo in a market where it might have been hard to get that elsewhere," Nolan said. "And it definitely gives New Fortress a much bigger footprint."
Brazil has been a significant importer of U.S. LNG, but is not one of the primary destinations for the U.S. cargoes. Brazil imported about 168.5 Bcf worth of U.S. gas from the time that LNG exports from the Lower 48 began in February 2016 through October 2020, according to the most recent figures from the U.S. Department of Energy, released in December 2020.
The shipbroker and consultancy Poten and Partners in a Jan. 13 outlook estimated that Brazil's annual demand growth for LNG will exceed 80% in 2021, although from a smaller base demand than major importers.
"Brazil obviously has the largest growth on a tonne-basis — it's up there with China and India," Poten & Partners LNG forecasting manager Kristen Holmquist said during a webinar. "And this is because of LNG-to-power projects that will be running for a full year or starting up."