New Fortress dives into Brazil [NGW Magazine]

To take advantage of the promising LNG market in Brazil, the US-based energy company New Fortress Energy (NFE) has made a big move into Latin America's largest oil and gas producing country: Brazil. 

The company, with worldwide energy infrastructure operations, bought Hygo Energy Transition in a $5bn deal announced mid-January. 

Hygo is a joint-venture between Golar LNG and Stonepeak Infrastructure Partners. With the purchase, NFE will acquire an operating floating storage and regasification unit (FSRU) terminal and a 50% interest in a 1.5-GW power plant in Sergipe as well as two other FSRU terminals with 1.2 GW of power in advanced stages in the South America country, according to the NFE official statement.

Hygo's fleet consists of a newbuild FSRU and two operating LNG carriers. NFE will also own a leading owner of FSRUs and LNG carriers as well as a pioneer in floating liquefaction technologies with the GMLP transaction. The addition of Golar LNG Partners LP (GMLP)'s fleet of six FSRUs, four LNG carriers and a 50% interest in Trains 1 and 2 of the Hilli, a floating liquefaction vessel, is expected to support both NFE's existing facilities and its international pipeline projects.

"With a strong presence in Brazil and a world-class LNG shipping business, Hygo and GMLP are excellent additions to our efforts to accelerate the world's energy transition," said NFE CEO Wes Edens. "The addition of Hygo will quickly expand our footprint in South America with three gas-to-power projects in Brazil's large and fast-growing market. With GMLP, we gain LNG ships and world-class operators that are an ideal fit to support our existing terminals and robust pipeline."

Golar LNG chairman Tor Olav Troim agreed with the NFE CEO.  "We are impressed with what Wes Edens and the NFE team have created and their commitment to changing the energy industry," Troim said. "They share our vision to provide cheaper and cleaner energy to a growing population. The consolidation of two of the entrepreneurial LNG downstream players gives the company improved access to capital and creates a unique world-leading energy transition company which Golar shareholders will benefit from being a part of going forward."

Along with the purchase of Golar Power, NEF also announced agreements with BR Distribuidora and the acquisition of the project for the LNG terminal at the Port of Suape, in Pernambuco, a Brazilian state located in the northeast region of the country. With the deal, NEF will land in Brazil with four LNG terminals: two in the northeast, one in the north and one in the south of the country; and 4.1 GW of thermoelectric power in gas plants. 

Following the Golar Power strategy, the intention is also to operate in the commercialization of LNG. In the announcement of the purchase, NEF mentions the possibility of supplying the entire northeast region.

Opportunities ahead

NEF's foray into the LNG market can be supported by substantial interest in new LNG regasification terminals in Brazil, which is reflected in the many projects that have been announced and are in various phases of planning.

According to Prysma E&T Consultores director Sylvie D'Apote, most regasification projects are linked to a power project: the power plant is the anchor, while other markets are an upside to be conquered gradually, as gas demand from other sectors is generally low in Brazil. "So opportunities and challenges for new LNG projects are related to opportunities and challenges in the Brazilian power sector," she said.

Brazil’s needs for energy are growing. D'Apote explains that LNG plays an important role in the country's gas supply as it provides flexibility and security of supply, in particular to the power sector. "The (Brazilian) government is pushing forward a comprehensive gas reform aimed at attracting new players, increasing supply competition, which hopefully will reduce prices and increase demand," she said.

LNG imports started in late 2009 and are an important component of the country's gas supply. "Given that in Brazil, gas-fired power plants are used as a backup for the hydropower plants, gas demand from power plants is highly variable from month to month and from year to year," the consultant said.  

"LNG is used to supplying peak demand from power plants. Even with the substantial growth in domestic gas production, related to the presalt development, the need for LNG as a flexible gas source will continue, because presalt gas is associated gas, therefore not at all flexible." she added.

Companies like NFE who are interested in selling LNG in Brazil or building regasification terminals need to understand the workings of the power auctions for new capacity and how much power demand will recover in the next few years, as this will determine how much new power generation capacity will be needed. In particular they face strong competition from alternatives, such as wind and solar, whose costs are very low.

"Aside from the LNG-to-power market, there is also a substantial interest in LNG as a means to transport and distribute natural gas to areas not yet supplied by pipelines. This is a promising market, but of course the volume is a lot smaller than in the LNG-to-power market, and the complexities – logistics and the commercial risks – are a lot larger,” she said. 

According to Brazil's state-run energy research office EPE, the South America country may raise roughly $9bn in investments in the gas market from 2020 to 2029. The LNG market may see $200mn invested in regasification terminals by 2029.  With that amount of investment, the LNG supply in Brazil could rise 40% by 2030, reaching 1.75mn m³/day.

Petrobras' role

Another point is the role played by state-run oil company Petrobras in the LNG market. "Petrobras used to be the only importer of LNG in Brazil, as well as a major player in all stages of the natural gas value chain. This is changing,” D’Apote said. There are now two regasification terminals owned by independent companies and several more are at an advanced planning stage. Petrobras is also committed to giving access to its regasification terminal to third parties and is seeking to lease out its Bahia terminal [in the country's northeast]. I think that in five years we will have a very different gas market in Brazil and many more players," she said.  

Petrobras is refocusing its activities and investments on its core business, which is high-yield oil fields in the pre-salt, and selling its assets in non-core areas, such as natural gas and refining. "This means that the business environment for natural gas and for LNG is very attractive at the moment and we are seeing a lot of interest from foreign investors and local companies," she said.