TLDR
- New Fortress Energy stock surged 23% in pre-market trading after announcing a seven-year LNG supply deal with Puerto Rico
- The agreement covers up to 75 TBtu of natural gas annually with minimum volumes of 40 TBtu
- Gas will be supplied through NFE’s Fast LNG facility in Mexico, which is currently operating above capacity
- Most volumes will be priced at 115% of Henry Hub plus $7.95/MMBtu
- The deal awaits approval from Puerto Rico’s Financial Oversight and Management Board
New Fortress Energy shares rocketed higher Wednesday morning following news of a major gas supply agreement with Puerto Rico. The stock climbed 23% in pre-market trading as investors digested the seven-year contract details.
The company struck a deal with Puerto Rico’s Third-Party Procurement Office and Public-Private Partnerships Authority for liquefied natural gas supply. The agreement now sits under review by the Financial Oversight and Management Board of Puerto Rico.
Under the contract terms, NFE will deliver up to 75 TBtu of natural gas per year. Minimum annual volumes start at 40 TBtu but could rise to 50 TBtu if certain conditions are met.
The pricing structure varies by destination within Puerto Rico’s grid. Most gas volumes carry a price of 115% of Henry Hub plus $7.95 per MMBtu.m
However, supplies destined for San Juan units 5 and 6 get preferential pricing. These units historically consume around 20 TBtu annually and will pay 115% of Henry Hub plus $6.50 per MMBtu.
The deal aims to replace expensive liquid fuels with cleaner natural gas. Puerto Rico has long struggled with high energy costs due to its reliance on imported petroleum products.
NFE plans to fulfill the contract through its Fast LNG facility located off Altamira, Mexico. The 1.4 MTPA facility began operations in late 2023 and currently runs above its nameplate capacity.
Financial Stability Takes Center Stage
CFO Chris Guinta highlighted the strategic value of locking in long-term offtake agreements. “Matching our LNG production with long term offtake has always been our goal,” he said.
The executive emphasized how the deal creates sustainable margins for the company. “This locks in sustainable long-term margins for NFE and provides a foundation of financial stability for our company,” Guinta added.
The Puerto Rico agreement builds on NFE’s existing presence in the territory. The company already holds a 25-year supply contract with Energiza for a new 550 MW power plant under development.
Market Response and Production Capacity
Investors clearly viewed the announcement favorably given the strong pre-market reaction. The 23% jump reflects confidence in NFE’s ability to secure long-term revenue streams.
The Fast LNG facility’s above-capacity performance demonstrates NFE’s operational execution. Running beyond nameplate capacity provides additional confidence in meeting contractual obligations.
The seven-year term provides revenue visibility that public companies often struggle to achieve in commodity markets. This predictability likely contributed to the positive market response.
Puerto Rico’s energy infrastructure has faced numerous challenges over the years. The island’s electrical grid requires substantial investment and fuel supply agreements like this one.
The Financial Oversight and Management Board of Puerto Rico currently reviews the agreement for final approval.
