New Fortress seeks permits for Gulf of Mexico FastLNG +3

09:56 01-Apr-22

The New Fortress conference call has just concluded.  My question about permitting time was not explicitly answered, but management cites a 356 day timeline to licensing in its presentation, with the next step being certification of the application as complete in 21 days.  I am further encouraged by the comment that New Fortress "met in parking lot" to provide applications, which consists of 8K pages, and 13 environmental studies.  This gives me hope that this first American project will be fast-tracked by agencies considering application phases in parallel rather than sequentially.  Positioning the project in maritime jurisdiction was also smart.  In short, it's time for the Biden administration to put up or shut up with regard to its promises to liberate Europe from Russian gas dependence.

On the New Fortress side, management says it has done more LNG transfers than any company in the western hemisphere.  It also notes that traditional LNG takes 4-5 years and $1.2b to develop, whereas it claims it can do this in 50-70% less time and at 30-50% less cost.  The company signed definitive pipeline agreements yesterday and is doing the lead assembly work already.  I don't think it would be taking those steps without a high degree of confidence on its timeline, but working with governments is always a risk.  If all goes well, this should be viewed as the first of several such projects.  I note that the two savan ships mentioned in the last quarterly report are still uncommitted.

Extending that, management was asked about the New Fortress moat and I found the answer about time and prior investment in both equipment and expertise to be quite convincing.  The other aspect that really makes the company unique is its financing and ability to avoid encumbering its development by pre-selling the resultant gas.  Instead, New Fortress has already purchased not just ships and jackup rigs at bargain prices, but also long lead equipment like turbines and compressors.  If there are to be more such operations, whether from New Fortress or others, I see opportunity for Xebec's spare capacity in Denver.

NFE initially traded above $45 in the early going but has dropped a little below that level.  That still means the stock price has more than doubled from points where I cited massive upside potential and was pounding the table earlier this year.  I can't be certain what it will do in the short term, and those who can be nimble or who fear volatility may want to take some profits at this level.  For long term investors, though, this NFE continues to look like an opportunity to get in on the ground floor of a company that can eventually become like Shell, which is also bringing new gas production on line, yet without the legacy oil ties.

New Fortress has applied for permits to build and operate a FastLNG liquefaction platform about 16  miles off the southeast coast of Grand Isle, Louisiana with a capacity of about 2.8M tons per year to be sourced by "abundant U.S. gas supply" and leveraging "existing infrastructure".  The company targets operations beginning in 1Q23 and will hold a conference call tomorrow morning.  ENI is cited as a potential tolling partner and spot market sales are also contemplated.

An obvious question is on when it needs to have approval in order to hit the goal of constructing an operating in less than a year.  It would be an impressive accomplishment, and management says:

Procurement of all long-lead materials is complete and modular assembly of equipment is underway.

It also touts the capacity as being above 25% of the promised American exports to Europe.  My calculation is 29.6%.  It will be interesting to see what NFE shares do today and tomorrow, as an announcement like this was expected, but maybe not the scale of the ambition.  They haven't traded so far in the pre-market, and I would have rated this note higher if this had been a complete surprise.