New Fortress Energy, the natural gas plant in Nicaragua, on the verge of becoming operational?

After several months of announcing that the plant installed in Puerto Sandino to generate electricity with natural gas will start operations in 2024, the local subsidiary of the US company New Fortress Energy formalized on September 26 the license contract to operate, which it signed with the Ministry of Energy and Mines (MEM). This new step could indicate that the plant could finally start injecting the 315 megawatts of energy it will produce into the distribution system.

According to information disclosed in the MEM website, in January of this year, the company signed the power purchase-sale contract with the distributor Disnorte-Dissur. Although the details of this contract are unknown, specialists of the sector consider that its entry into the electricity market will not have an impact on the tariff, since they usually use fixed prices, which do not benefit the consumer.

Should the company's announcement be made in 2024, it would confirm that the years of delay in the start-up of the plant's operations were not caused by the sanctions imposed by the United States in November 2021 on officials of the electricity sector. Rather, as assured by several specialists in the sector, the company stopped its plans due to the volatility of the international price of natural gas, which reached such high levels that the profitability of the business was at risk.

Effective until September 2053

"My intuition tells me that the possibility of generating would be approaching... My information is that at the price that natural gas was at, it did not make economic sense neither for them nor for the country (to start operations). Now, once again, the price of gas has dropped substantially", says a businessman from the electricity sector, who requested anonymity.

In edition number 173 of the official newspaper La Gaceta published on September 26, 2023, the company that represents New Fortress Energy in Nicaragua published the deed of the operations contract, signed last July 12 with the Ministry of Energy and Mines (MEM), which acted as representative of the State of Nicaragua. The document is endorsed by the Attorney General's Office, became effective upon publication in La Gaceta and will have a term of thirty years, i.e. until 2053.

The license agreement was signed last July 12 by Estela María Martínez Cerrato, on behalf of MEM, and Martín Tapia, as legal representative of the company NFE Nicaragua Development Partners LLC, Nicaragua branch. This company was created and registered in April 2020 and had applied for the operating license in 2021.

Gas prices at historic highs

According to businessmen linked to the electricity sector consulted by LA PRENSA and who responded on condition of anonymity, although the company applied for the operating license in 2021 it had not managed its delivery because it had no interest in starting to generate because the price of gas rose too high. But now that prices are back to pre-crisis levels, the company is resuming its project. "That is why the company, which trades on the stock exchange, announced that they will start generating in 2024", says one of the consulted businessmen.

Specialized sites explain that after reaching the historical minimum price of 3.23 dollars per million thermal units (MMBTU) during the pandemic, the price of natural gas began to rise. Rises continued in 2021 and reached historical records in 2022 after the Russian invasion of Ukraine. In 2022 in Europe the price exceeded $30 per MMBTU and pushed the world average price to $9.44 per MMBTU, the highest in history and far from the historical low of $3.23 in 2020. In recent months the average price has been below $3 per MMBTU.

"The purpose of this contract is to establish the rights and obligations of the parties, as a consequence of the granting that MEM, on behalf of the State of Nicaragua, makes to the company of a generation license for the construction, start-up, operation and maintenance of an electric power generation plant based on liquefied natural gas (LNG) called Central Puerto Sandino, with a nominal capacity of 315 megawatts," reads part of the document.

Total investment of US$700 million

The document also establishes that 15 days after notification, the company NFE Nicaragua Development Partners LLC, Nicaragua branch, must send written acceptance of the ministerial agreement and cancel the payment for the grant fee, equivalent to 0.1 percent of the value of the investment in favor of the MEM, under penalty of nullity if it does not comply with the acceptance and payment. The amount to be paid is 397 thousand dollars or its equivalent in córdobas at the official exchange rate in effect at the time of payment.

Once this procedure is completed, the Puerto Sandino Power Plant, Nagarote, León, is authorized to start generating 315 megawatts with natural gas. So now it only remains to wait for the plant to start operations in 2021, after an unsuccessful announcement of the start of operations in 2021, to finally begin operations in the near future.

According to the contract, the total cost of the project is US$700 million, divided into two components. The first includes the power generation plant with a nominal power capacity of 315 megawatts, with a projected investment of US$397 million. The second includes the works related to hydrocarbons, including a Liquefied Natural Gas (LNG) import terminal, where a Floating Storage Unit will be located, from where it will be transported to the regasification site, with a projected investment of US$303 million.