New Fortress Energy forecasts coming rebound in LNG demand in Asia-Pacific

US LNG developer New Fortress Energy expects the global LNG market to remain significantly undersupplied through 2023 and beyond, with a rebound in demand in the Asia-Pacific region likely offering a boost to US LNG industries in the near term, executives said on a third quarter earnings call Nov. 8.

Europe has powered demand for US LNG cargoes throughout 2022, with more than 70% of US LNG cargoes delivered to Europe in October, according to S&P Global Commodity Insights data. But New Fortress expects that a recent pullback on China's so-called zero-Covid policy — which has tamped economic activity and energy demand with targeted lockdowns for a few years — could signal a coming boost in demand from Asia-Pacific.

"In Asia, there has been a pronounced step-down in LNG importation," New Fortress CEO Wes Edens said on the call. "But in China the zero-Covid policy has obviously impacted them economically and they have actually scaled back dramatically on that [policy].

"It's something we think could actually change [the market] markedly."

New normal, new outlook

New Fortress counts a small LNG liquefaction facility in Florida among its operational assets, in addition to a handful of LNG and power assets in Latin America and the Caribbean. But the company's current growth ambitions center around planned offshore LNG liquefaction terminals under development in the US Gulf Coast and Mexico.

Recent progress on those LNG projects, as well as a brighter outlook for global LNG demand following sanctions on Russian energy this year, has prompted New Fortress to forecast a nearly sixfold increase in its contracted LNG supply volumes by 2025, to around 464 Bcf/year, from 88 Bcf/year this year.

New Fortress expects the global LNG market could tighten significantly in coming years with around 100 mt/year in new LNG import and regasification capacity across Asia-Pacific set to come online, potentially adding to existing supply security issues in Europe, Edens told investors.

"The question is ... what is the new normal and what is the level that we would expect for gas to eventually settle at once this crisis is settled in one form or another?" Edens said Nov. 8. "Maybe the era of cheap energy, particularly in Europe, is one of the past and when things normalize ... you'll end up in a higher place overall."

Larger rival Cheniere earlier this month sounded a similar refrain in regard to future European demand, with Chief Commercial Officer Anatol Feygin suggesting in a third quarter earnings call Nov. 3 that natural gas molecules will be "very difficult to come by" in coming years, especially with LNG demand from China on the rise.

New Fortress expects to grow its natural gas-based margins to $15.53/MMBtu in 2023, up from a projected $12.50/MMBtu this year, if its planned LNG liquefaction terminals in Altamira, Mexico, and offshore Grand Isle, Louisiana come online as expected next year.

S&P Global forecasts LNG feedgas demand will rise to nearly 24 Bcf/d by 2030, from around 12 Bcf/d today. Demand is Mexico is expected to rise around 1.27 Bcf/d by the same point, from roughly zero today.

Altamira ahead of Louisiana

New Fortress plans to diversify its portfolio with LNG units in both Altamira and Louisiana in 2023. Management said that both places are highly competitive in terms of costs, but given its level of advancement, Altamira is likely to be first in line to receive a floating LNG terminal.

New Fortress recently signed definitive agreements with Mexico's state utility CFE which allow it to place the first unit in Altamira by the middle of 2023, Edens said.

The company announced on Oct. 28 it would deploy multiple 1.4 million t/year-units at Altamira to create a hub. The hub will use some of the gas currently not being utilized by CFE at the 2.6 Bcf/d Sur de Texas-Tuxpan pipeline crossing the area. Utilization at the pipeline, which goes from Texas to Veracruz, has been at around 20%, Edens said during the call.

"We feel great about our situation in Mexico," Edens said adding that the second unit will be deployed in Louisiana later in the year. The US Maritime Administration recently resumed its review of the offshore Louisiana project in late October, placing the project on track to possibly clear permitting hurdles in the first half of 2023.

New Fortress recorded net income of $62 million in the third quarter of 2022, up from a $10 million loss in the same period a year ago.