New Fortress Energy Is A "Mini-LNG" Play

The first IPO to brave the volatile 2019 market and the US government shutdown is New Fortress Energy (NASDAQ: NFE $17.00 - $19.00). New Fortress is another energy company focused on liquified natural gas (LNG) like market leader Cheniere Energy (NYSE: LNG $63.33).

Natural gas has been growing rapidly as a fuel of choice for generating electricity and also for powering vehicles and industrial projects. It's cleaner and has become plentiful, especially in the US. However, as a gas, it is difficult to store and move outside of dedicated pipelines. By cooling natural gas down to minus 162 degrees C it changes it into a liquid and shrinks the volume to just 1/600th of its original volume. Then it can be stored and transported easily in special purpose trucks, railroad cars, and ships.

LNG has been on a tear the last few years and is poised to continue to grow into the future along with renewable energy sources. Some have posited that natural gas is just a "bridge" to renewable energy sources and is growing as we shift from coal but will be eclipsed once renewable sources are more cost-effective. The real question is how long is the bridge? According to a two-year study by MIT published in 2011 the natural gas market will continue to grow through 2050. [Here is a link to the 300+ page MIT report (PDF).]

There are others though that believe the "reckoning" for natural gas could come much sooner. A more recent analysis by VOX suggested that renewable energy costs are dropping more quickly than expected which diminishes the need for natural gas. When combined with improving battery economics the combinations of solar/wind plus battery storage can mean "that it may be cheaper to build renewable plants than to continue to operate natural gas plants by 2035." [Here is a link to VOX article.]

On balance we see natural gas taking more share from oil and coal than renewables will be taking share away from natural gas - at least for the next decade or two. Some uncertainty around the timing might favor a more granular expansion model like the one New Fortress is implementing. There's a cool analysis by Lazard concerning the "levelized cost of energy" and if you are into that kind of thing you can get the full PDF of that here. It looks at all the energy sources both with and without subsidies.

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Disclosure: We do not have any vested interest in the shares of this stock at the time of writing and publication. We may however take a position post publication and are not under any obligation to ...

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