- The 50-50 joint venture comes amid a glut in global LNG
- Brazil is boosting gas imports as drought cuts power supply
Golar LNG Ltd. will join private-equity firm Stonepeak Infrastructure Partners to invest in power projects and floating import terminals as nations seek to take advantage of a global glut of liquefied natural gas.
The companies have formed a 50-50 joint venture, Golar Power Ltd., to own and operate storage and regasification units and related infrastructure, Hamilton, Bermuda-based Golar said in a statement Monday. Golar shares jumped the most in more than three months.
The move comes as LNG prices have tumbled with crude, contributing to an LNG glut that is expected to expand with surging capacity in Australia and the U.S. Markets for floating import units, which can cost a fraction of onshore terminals, include Brazil where drought has increased dependence on the power-plant fuel.
The joint venture marks the "first serious step towards establishing a midstream operator" and raises "significant value potential through a series of FSRU conversions," Fearnley Securities AS analysts in Oslo including Espen Fjermestad said in a note to clients. "For the next five years the market will be long LNG supply. One of the major obstacles ahead of a final investment decision was the sourcing of the gas."
Golar surged 12 percent to $17.72 at 10:52 a.m. in N.Y., after earlier rising 13 percent, the most since March 4. The stock is down about 65 percent over the past year. In April, Golar was downgraded following reports that negotiations between Schlumberger Ltd. and Ophir Energy Plc broke down over their purchase of a stake in Golar’s Fortuna LNG project off Equatorial Guinea.
Brazil has increased LNG imports in recent years after topping out supplies via pipeline from Bolivia. Brazil’s state-run oil company, Petrobras, bought about 80 LNG cargoes last year and is expected to purchase another 50 in 2016, according to Gas Energy, a consultancy based in Porto Alegre, Brazil.
Other South American countries, including Colombia, are emerging as potential LNG importers. The U.S. became an exporter of LNG produced from shale gas for the first time earlier this year.
New York-based Stonepeak made an initial commitment of $290 million in new equity to fund the partnership, and may “invest up to $500 million in the coming years,” Luke Taylor, senior managing director at Stonepeak, said in the statement. The initial investment includes $117 million in cash to acquire a 50 percent stake in the partnership, $100 million in preference shares on the deal’s closing and a commitment for $75 million in additional equity. Golar will commit $75 million, the company said.
Golar Power’s initial assets will include a regasification unit under construction, two LNG carriers than can be converted to the floating units, and the right to invest as much as 25 percent in the Sergipe Power project in northern Brazil. The joint venture will also have a one-year option to acquire two additional LNG carriers from Golar.
“LNG prices are at a significant discount to oil prices and Golar Power sees a range of potential LNG importers who would benefit from a rapid switch to gas,” the company said in the statement.