New Fortress Energy Inc. (NFE) Earnings Call Transcript & Summary

Good day, and welcome to the NFE Company Update. Today's conference is being recorded. At this time, I would like to turn the conference over to Chance Pipitone. Please go ahead.

Thank you, Rachel, and good morning, everyone. Thank you for joining today's conference call where we will discuss our recent transformative transactions in Puerto Rico and Brazil. The call is again being recorded and will be available by replay on the Investors section of our website under the subheading Events and Presentations. At the same location, you will find a presentation that we will walk through on today's call. Please review the presentation as it includes important information, including disclosures and risk factors. With that, I'll now hand it over the call to our Chairman and CEO, Wes Edens.

Great. Thanks, Chance, and welcome, everybody. Thanks for calling in this morning. I'm going to refer to the presentation put up on the website as well or actually specifically Brannen and Andrew will be going through that. But let me just give a few introductory comments, and then I'll turn it over to them. So across the board, we've got a very good year thus far, and we're well on track to meet the guidance we've provided to you all. There's a number of good updates in the business, but in particular, recent developments of Puerto Rico and Brazil have been extraordinary. And as a result, we thought it would be helpful to spend a few minutes this morning to update you on the most recent events. Between Puerto Rico and Brazil, we have significant operations and perhaps the 2 greatest downstream gas-to-power markets in the world. They're significant, both in terms of the scale of our current operations and more importantly, have the potential to be even more impactful to us going forward. We had extraordinary couple of weeks in each country, and I want to take a moment to update investors and provide context on both what we've accomplished to date, and importantly, what we expect will happen over the next few months. Just to restate the mission of our company, the central theme of the business is our mission to bring cleaner and cheaper power to countries around the world. Of all our principal -- all of our principal markets reflect this mission, but perhaps in no place on earth of the better expressions of this in Puerto Rico and Brazil. First in Puerto Rico. In Puerto Rico, we began the process of switching their primary fuel source from the distillate fuels, diesel/bunker to natural gas nearly 7 years ago. This process has developed significantly over time that is now poised to accelerate greatly with the Island-wide fuel deal we signed a week ago. Our goal with the Island-wide deal is now to expand our re-gas and logistics operations with a goal to see distillate futures -- distillate fuels eliminated entirely in Puerto Rico at some point in the not-too-distant future. The impact of doing this would be substantial. Number one, replacing diesel/bunker could save Puerto Rican payers over $1 billion in fuel costs annually, so massive savings. Number two, if successful, it would reduce emissions dramatically. Taking out nearly 7.3 million tons of CO2, which is the equivalent of taking 1.3 million cars off the road. Number three, it sets the stage for future development of an updated power grid that we can see comprised entirely of new efficient power sources and renewable power. That's the vision we see for the island. It would accomplish the 2 goals that we have laid out in terms of our participation in the island, which is #1, to greatly increase system reliability and also, #2, to greatly reduce cost. To give you some context for what this means for us at NFE, in aggregate today the current gas contracts we have signed in Puerto Rico are for approximately 105 TBtus. So just over 2 million tons of LNG. That's broken into 25 TBtus, roughly for San Juan 5 and 6 and the new 80 TBtus on contract we signed last week. The total market, if you add up all the current thermal generation in the island today is between 3,000 and 3,500 megawatts of power. This implies approximately 300 to 350 TBtus of potential demand, which in turn, when you look at the current supply of our 105 TBtus means that this represents much more of a floor than a ceiling as we view the market opportunity. It's an extraordinary opportunity for us, and more importantly, an extraordinary opportunity for Puerto Ricans. Second, on to Brazil. Brazil is a fascinating case study of a country that's been phenomenally successful with respect to the use of renewable energy sources in their system. Upwards of 75% of the power comes from renewable power, hydro, wind and solar in particular. The issue that they have is how to balance the system when it doesn't rain or the wind doesn't blow or the sun doesn't shine. The word at the moment to describe this intermittency is capacity which in simple terms in Brazil means buying insurance. How it works is straightforward. The government pays you a standby fee to compensate you for building power, which in the case of the PPA we just signed last week, is $280 million a year for the next 15 years. And then to the extent that they need the power to balance the system, they pay you a healthy energy payment, which in this case is JKM comes 120%. And by providing backup gas powered capacity, you stabilize the system. That's how you balance an electrical system with a large amount of renewables. It's a very, very thoughtful and sensible strategy by the government and one in my opinion, that could be adopted and should be adopted everywhere. I believe what we're seeing in Brazil as a precursor we'll see in virtually every place in the world where renewables are being built out in large scale, which is a practical matter means virtually everywhere else in the world. The world is already short power in general. And now with AI and data centers and other incremental demand from electric vehicles, et cetera, this seems to be just the beginning of this movement. It's very, very bullish for downstream power and LNG in all of our markets in no place more so than Brazil. We've invested billions of dollars in infrastructure to create the terminals in Brazil that are now operational. Last week, we announced that we closed on the 1.6 gigawatt power purchase agreement, and Andrew will detail the economics of it shortly, which are extraordinary. This PPA is going to now be followed with a large capacity auction in Brazil this summer and infrastructure gives us a highly competitive position to compete successfully in these auctions. We've invested several billion in Brazil and are now looking to capitalize the company in a thoughtful way. It's a very, very valuable company, worth much more than our investment basis and we believe it's not being reflected in our valuation at all, which creates a very compelling opportunity. More on that to come. With that, let me now turn it over to Brannen and Andrew. Brannen?

Yes. Thank you, Wes. I appreciate it. Thank you all for joining. I'll move to Slide 3. As you know, following our story over the past few years, in 2023, NFE responded to a call from Puerto Rico to bring power to the grid, stabilize the system. The grid there was already under severe stress, but they had been hit by a few natural disasters, the most recent of which being Fiona that put in their grid in a very precarious state. The government of Puerto Rico brought in the U.S. Army Corp. The U.S. Army Corp. then initiated a process to bring on folks who install power and NFE responded to the call by bringing people and resources and installed 425 megawatts of fast power in record time. Just to put it in perspective, NFE and the folks that work in that business built 2 plants in less than 180 days. The first in Palo Seco with 175 megawatts, the second in San Juan for 250 megawatts. This was the fastest large-scale power installation in the history of the Army Corps, and that's saying something given their illustrious past. The goal was to create reliable baseload power to provide stable, reliable energy to industrials and residential users of the grid that rely on that for essential services. These plants are critical to the nature of what happens every day in the electrical system. The plants are 98% of the time reliable and up and it's a cornerstone of the electrical grid providing 15% of the needs of the Puerto Rican energy system every day. Moving to Slide 4. On the back of that, we closed 2 transactions on March 15 that provided this strength for the duration to come. The first transaction was we sold the 2 power plants that we built, totaling 425 megawatts of installed capacity to PREPA, while at the same time, NFE entered into a new supply contract that Wes referenced for 80 TBtu of natural gas that could be supplied to these 2 plants as well as additional sites across the island, which we refer to as the Island-wide LNG contract. The first transaction for the sale of the 2 operating power plants. We sold the 2 power plants to PREPA for $373 million in cash for that comprised both Palo Seco and San Juan. In addition to that, to close up the FEMA sale, we concluded the power contract that we had previously entered into with the U.S. Army Corp about halfway through its term and today we are in dialogue with them about the remaining payments owed for the balance of the term. The units transferred to PREPA on March 16 with no disruption of service, including the provision of gas that picked up service at midnight on the 16th. Transaction #2 that we described on Page 6 was an Island-wide 80 TBtu gas contract. NFE entered into the gas contract that I said previously provides gas to both Palo Seco and San Juan for the current units there as well as provides additional capacity that can be provided to additional supplemental power that would be added at San Juan and Palo Seco including additional sites across the island. Importantly, this contract is structured as a fixed discount to diesel price landed on the island, which today that current landed price is between $20 and $21. And the duration of this contract, assuming it goes to full term, will be 4 years. This enables the system to switch from its old and inefficient units, many of which are gas capable today, away from distillate fuels to natural gas as well as providing additional generation that can provide natural gas-fired power in substitution of its oldest and most inefficient units. Moving to Slide 7. It is hard to overstate the impact of these 2 transactions. Together, as Wes mentioned, it has the potential to save Puerto Rican ratepayers over $1 billion of fuel cost per year and avoid 7.3 million tons of CO2 emissions for Puerto Rico. This is critical given Puerto Rico's goal to transition to a net zero grid, but it is more critical in the sense of providing immediate real-time savings to the ratepayer of Puerto Rico that could be otherwise invested in the economy of Puerto Rico and otherwise invested into additional generation that can further strengthen the electro grid that's so badly needed. In addition, if you look at the features, it helps eliminate any use of diesel and bunker because Puerto Rico imports currently about 60% or 70% of its energy as diesel and bunker to provide its electrical power. This particular transaction has no additional capital cost for Puerto Rican customers. Much of it was funded through the federal government programs administered by FEMA. In addition, it provides generation that is more efficient and significantly more reliable than what exists. For example, PREPA's current fleet today is only 50% reliable, meaning each and every day, it's a coin flip, where there certain units will be up and running. In contrast, the generation that NFE built last year is up and running 98% of the time. So our 425 megawatts is equivalent to 850 megawatts of PREPA's existing installed capacity. As I mentioned, the fuel cost, which has an immediate impact on the Puerto Rican economy. But the other piece is these particular units because of their turbine size, reliability and ability to respond to changes in demand fluctuation or an incredible complement to renewables and other initiatives that Puerto Rico has to transition its grid to a zero carbon grid. And as we mentioned, it has an immediate footprint -- immediate impact on the carbon footprint of the island, increasing health and air quality for the folks that are around these plants. I'll move to Slide 8. It's important to underscore the opportunity that these transactions have created for Puerto Rico. And just to put it in context, Puerto Rico today pays the highest price for electricity for the worst reliability in the United States and its territory. Most of the power generated in Puerto Rico today is from HFO and diesel, whereas on the mainland, there is simply just a small fraction of electrical power that are generated from the same sources. The average age of PREPA suite is over 40 years, so clearly, the grid is poised for modernization. If you look at the chart here, what we've done is we've detailed out by site opportunity that we believe exists for PREPA today to switch it's diesel and HFO burning plants to natural gas. We've divided into categories that include gas ready now, ready but with simply a small conversion project and then new builds. So from a thematic perspective, what we believe will happen to the PREPA grid is they will be able to immediately realize savings and transition existing plants to natural gas today while building new natural gas-based power over time that will then provide a base load efficient natural gas-based system that will ultimately back up renewables and get them to their goal. The chart on the right, I think, is most illustrative, which if you assume that the 3,700 megawatts of power today that is ready to be converted with dispatch at 80%, the TBtu of gas demand created is almost 300. So from an opportunity perspective, just in terms of avoided cost, the folks in Puerto Rico will be able to move from expensive and dirty fuels to much less expensive and cleaner fuels while achieving their long-term targets. And of course, for NFE being the catalyst for this, it's an amazing opportunity. So with that, I'll turn it over to Andrew to talk about Brazil.

Thanks, Brannen. Good to talk with everybody this morning. I'm on Page 10. So we've had a really big month for our business in Brazil. So we brought both the terminals online and are fully operational today after about 7 years of total development and construction. So absolutely massive milestone for us. And then we just last week completed the acquisition of the 1.6 gigawatt PPA that we acquired from Ceiba Energy and Denham Capital, which will be at our Barcarena site. That transfer has been fully approved by the regulators in Brazil, and we now own that PPA at our site in Barcarena, so a very exciting moment for us. So just to recap on the right side of the slide, Barcarena terminal went COD in February. We started our contract with Norsk Hydro, which is a 15-year 30 TBtu supply agreement. Next year, we'll go COD on the in-construction 630-megawatt Barcarena power plant that will have a fixed gas supply component and a capacity payment. And then we are now constructing our 1.6-gigawatt power plant, which we're calling Barcarena 2, which will go COD in July of 2026, that's a 15-year PPA. We get a capacity payment of $280 million a year. So just on that scope of contracts, we have an 18-year average duration and that leads to kind of significant utilization in our Barcarena terminal. Although we will continue to grow, we have to upsize our deal with Norsk hydro, we hope to supply more industrial customers in the region. We have to develop more power. So ongoing story of Barcarena as well. And then our TGS terminal. So also COD-ed in February. We are connected into the TBG pipeline through our own 30-kilometer pipeline that we've built. And then the remainder of this year is really a story about growth at TGS. So there's upcoming power auction, announced for August 30. We have over 3 gigawatts of existing power plants that are connected into our pipeline system, which do not have PPAs and do not have firm gas supply and we also own a host of greenfield sites for new power development. So we're very excited for the TGS terminal to be the new import point for gas in the south region of Brazil and to develop power around that terminal, including the auctions this year. I just want to take a step back. The map on the left side here -- we'd like to show this because it's relatively useful about how we think about our business in Brazil. When we entered Brazil in 2021, we acquired the Hygo business for $3.1 billion enterprise value. At that time, we had a few other assets involved, which we've subsequently sold, including the big power plant in Sergipe, which we own 50% of, as well as the FSRU and Sergipe and 2 other LNG carriers. We've since sold those assets in asset sales previously announced. And what we really did during that time was also finalized the permitting and the construction of the Barcarena and the Santa Catarina terminals, now operational. The reason I like the map is it shows we were really thoughtful about how we thought about this portfolio and the assets we wanted to retain and the reason that we loved Barcarena and Santa Catarina is they had so much future growth associated with them. The map does a good job of demonstrating how Barcarena really is the sole import point for gas in the Amazon region. You can see how far away it is from the interconnected pipeline system in Brazil. And then I hope with our contracts and commercial activity, we're demonstrating that it's connected to a ton of industrial and power activity in the region. And then with the TGS terminal, you can see we're connected into the South pipeline system in Brazil, where traditionally, Bolivia has supplied almost 1/3 of the overall gas in Brazil and a much higher amount of gas into the southern pipeline system. That supply from Bolivia has declined by almost 50% in the last 10 years. And so Santa Catarina is perfectly positioned to provide incremental gas into a system which has declining supply today. And as we'll talk about kind of going forward with the business in Brazil, really the business of kind of thermal power and the capacity that Wes talked about is really a business of firm fuel supply and flexible fuel supply. And that's what we can do with an LNG import terminal, which is we can supply fuel on a firm basis. And by doing that, we can also be a standby fuel supplier for capacity power contracts like the ones we're talking about here in Brazil. So we'll get more into that. But I want to point out why these are so strategic to us and why our thesis in Brazil is very centered around having these 2 terminals in these specific locations. I'm flipping to Page 11. So we just want to talk through this 1.6-gigawatt PPA that we've announced in December and now closed. So this is a 1.6 gigawatt PPA that was won in the 2021 energy auctions. We bought it from Ceiba Energy, which is a portfolio company of Denham Capital. They were previously developing this project in another state in the Northeast of Brazil. We now own 100% of this project. It had a 15-year PPA with fixed revenues and then significant upside on gas margin. So let me talk about that in detail on Page 12. So flipping the page. So we've talked about this a few times, but just to make it very clear, we're utilizing our existing terminal in Barcarena to supply gas and then we are using also existing permits we have to build the power at a site adjacent to the terminal, which we owned. This PPA is a 15-year term. We get a fixed capacity payment of $280 million indexed to Brazilian inflation. And then when called upon to supply energy to the grid, we get an energy payment of 120% JKM, which covers the gas we will use to fire the power plant. On the right side is just a breakdown of what those economics look like. So $280 million revenue a year from the fixed capacity payment, that breaks down into about $200 million of fixed capacity EBITDA that we'll have for 15 years. And then when we dispatch, we believe we can make about $40 million for 10% dispatch or $100 million if we get 25% dispatch. So we're showing the range here of $40 million to $100 million of incremental margin based on how much dispatch we have in the year. Of course, that could go to 50%. That could go to 100% in a year where we have low hydro conditions or other issues in the grid in Brazil. So our illustrative EBITDA is $240 million to $300 million a year from this capacity PPA as well as a small amount of dispatch assumed. The other thing that we want to call out on this PPA is just that the fact that having the existing LNG terminal infrastructure is really what gives us the advantage in Brazil. So that allowed us to not only buy the PPA very quickly, but also to put it into construction and be confident about long-term gas supply. The really tricky thing here is if you owned offshore gas in Brazil, you typically need to find a baseload supply for that. What we can do with our terminal is we can have baseload suppliers, but we can also have kind of standby capacity suppliers like this and LNG really adds flexibility to the overall energy mix in Brazil that isn't there before. Page 13, we show the breakdown of what our NFE Brazil business looks like. So $500 million of contracted adjusted EBITDA today, that's a run rate number as of 2027 once we bring these power plants online. And then we're showing a bridge to $1 billion plus of EBITDA by 2028. That's $400 million that we expect to win with new power in the TGS terminal and then $100 million of incremental growth. The thing that we always want to call out about our business is a great operational leverage, so now that the terminal is operational, and we "paid for the expenses of the terminal, as we do new things, new growth, those economics dropped straight to the bottom line of our terminals into our business in Brazil. " So $500 million of existing contracted EBITDA going to $1 billion by 2028, and we walked through how we think we're going to get there. Page 14, I just want to spend a little bit more time on the TGS terminal in Santa Catarina. So on the left side, we're detailing what we expect in the 2024 capacity auctions. So on March 8, the Ministry of Mines and Energy in Brazil announced these options. We expect them to be over 8 gigawatts for thermal power and the auction will take place in 1 day on August 30, 2024. There'll be 2 products, both for Thermal Power, which have CODs for power plants in 2027 and 2028. What we're trying to do in the map here is to detail the existing power in the region that does not have firm gas supply and does not have PPAs. Just as a way of demonstrating that really, gas is the key element in making these PPAs happen this year. We expect that we can contract over 3 gigawatts in the auction and really centralize around our terminal, a whole new strategy for energy supply in the south region of Brazil. A couple of good macro stats just to remember about Brazil. So the grade today is about 205 gigawatts. That's compared to about 1.2 gigawatts in the U.S. And Brazil uses about 1/4 of the sort of primary energy per capita that we use in the U.S. The grid is 75% hydro and renewables, so super clean low-carbon grid and about 25% thermal capacity. But a lot of that thermal capacity is aging. The government has also come out and, in connection with this announcement of the auctions, has said they expect to contract over 20 gigawatts of firm power by 2032. That's to balance out both the load growth that they see and also the intermittent capacity that they have from the renewables and hydro. This is a really great mechanism of these auctions for acquiring power in Brazil. To date, we've had over 23 gigawatts of gas power plants awarded in the auction since 2005. But I think almost all of those have been financed in the local capital markets in Brazil as well. So what we've seen is a really useful and working mechanism. It's not only an award, but also to finance and build power in Brazil. So we're really excited about the auctions this year, and we think our TGS terminal will be the center for a lot of new power that really helps the grid in Brazil. Page 15 is just to walk through kind of the near-term catalyst for us. So kind of, again, repeating $500 million of contracted run rate EBITDA today. We have 18 years of contracted life at our power plants and our Norsk hydro gas supply in Barcarena. The 2024 auction, we think can be over 3 gigawatts of new capacity at the terminal in TGS. And then we expect additional organic growth, whether that be new gas supply customers, increases in our current customer base and then also, of course, new power and new supply that's going to happen at both our Barcarena and our Santa Catarina terminals. On the right side, just summarizing our key objectives. So construct new reserve capacity power, provide gas to customers with no firm supply, specifically in the south region of Brazil. We're going to finish construction on our power plants in Barcarena, and we're going to turn all those online over the next 2 years. We're also evaluating a potential equity raise to pursue these growth opportunities in Brazil. We want to make NFE Brazil a self-funded kind of separately capitalized entity that's really set up well to pursue all this growth and achieve that bridge that we showed, which is going from our $500 million of EBITDA today to over $1 billion. So very excited about the future in Brazil, and we expect to continue to show you our execution in the next few quarters. Back to Wes.

Great. Well, then just for a few quick questions. I don't want to keep you long, not very long this morning and maybe a couple of questions, please, operator.

[Operator Instructions] Our first question comes from the line of Devin McDermott with Morgan Stanley.

Thanks for the update today and congrats on all the successful developments for the downstream business. I wanted to kick off with a few on Puerto Rico. The first one, just on the new 80 TBtu contract award on price structure and duration. So I think there's been a few media reports that point out around 73% slope to diesel for the Puerto Rico contract. I was wondering if you could confirm that and add if there are any other nuances we should think about on the price structure and then talk a little bit about duration. So how you think about the 1-year extension options and then what happens beyond this 4-year term?

There have been press reports on it, and we don't want to comment on them directly. I can definitely confirm that the structure of the contract is, as you described. So it's meant to be as a percentage of diesel and thereby ensuring that Puerto Rican save money on the fuel switch in any case. So if the example is, as you suggested on 80 TBtus that would be savings kind of guaranteed of $400 million plus a year. So over a 4-year term, that would be $1.6 billion. So again, that's a fraction of the total amount that is available to be switched. So you can see that, that is a massive amount of savings from the outset. The contract is structured as a 1-year term with extensions that take it out to 4 years, and our view is that given the savings and given the nature of the contract, it is very likely to be extended to that term. I think that the narrative that Brannen went through is a compelling one and we look at it, which is basically when you think of the path of where we started and where we are today and where we see the future, we started virtually the entire island was on distillate fuels. So the comparison would be in the United States, where less than 1% of our electricity comes from distillate fuels. Here, virtually 100% of it was. That's where you really started -- you've made a massive move in that direction by now having 105 TBtus that are now on gas as a replacement fuel to the other. And of course, we think that it is very likely that actually the bulk of it will be converted. So that takes you to where both the now and the immediate future is. And we think that all of the gas switching, the infrastructure, the logistics can all be accomplished between now and the end of the year. So to get up to speed on the 80 TBtus, we think that's a matter of a couple of months. For the balance of it in terms of opportunity set, we think it all happens between now and the end of the year. So it's not a complicated process to get from here to there. I think that the last phase of it, though, would be then to take the existing power that as Brannen said, I think more than half of it was built in 1975 and before. So antiquated machines by any measure and really replace them with new efficient power that can both then support a maximum load of renewables and also do so in a much, much more fuel efficient way. So that's the path. And so I think that what you see right now is the kind of midstream of that conversion from distillate fuels to gas I think you'll quickly evolve to a place where you really resolve a significant amount of it on the gas. And I think the last phase, you'll see the shorter-term contracts replaced with longer-term contracts, little company, long-term development of brand-new generation. So it seems like a very, very, very obvious and very logical path to us right now. So.

That's great color. And Wes kind of leads into my next question, which is on this new power opportunity. I think about 2 weeks ago, there was a new 300-megawatt RFP launch for new power supply in Puerto Rico. I was wondering if you could talk a little bit more about that and then more broadly, the timing of this new power gen opportunity and how that fits into the Puerto Rico growth potential?

Again, I think when you look at the chart that Brannen referenced, there are a handful of sites that have significant amounts of old antiquated power around the system. The sites are good sites. The interconnects are good interconnects. It's just the power itself is kind of old. And so I really expect that all or virtually all of that will be replaced in the next couple of years with new power. We expect that in our position as the primary provider of gas and logistics on the island they would be in a very good position to compete for that. We did compete for the 80 TBtu contract, right, as we competed for everything down there. So all run in a very, very public and disciplined manner. And so that's what it will be. I think in order to be successful, you need to have access to gas, access to the kind of wherewithal and the ability to provide logistics and, of course, then the capital and the know-how to help get the things built. And we think we feel really good about our capability in all those regards. So it's a -- it will be a bit of a process, but it's now -- there's no question that you've got real duration and durability to the opportunity on the island, which I think was a question a lot of people had with respect to our FEMA-related contract and how the transition would be. Transition is now complete, and we feel actually amazing about that. We feel great about what we did for the government. We feel great about what the government did for the territory in Puerto Rico. It's a spectacular combination. And the net of it is that asset now belongs in the hands of the Puerto Ricans, which it does, and we provide gas to that and other assets around the island. So it's a great, great situation. And I think it will continue to evolve. But now the path of evolution appears a very, very straightforward one. And I think you'll see a lot of progress on that, both in terms of the duration extension but also the incremental amount of gas, which needs to be supplied.

Next question comes from the line of Craig Shere with Tuohy Brothers.

So first, just kind of picking up on Devin's questions. Did I hear correctly the full expanded 80 TBtu of that PREPA contract was seeing fully in service by year-end this year, the whole 80? Does Cheniere share in all PREPA fuel cost savings associated with this to try to get up to that $100 million a year, I think we're allowed. And finally, how would you peg increased all-in cost of delivered gas to more remote power units versus San Juan and Palo Seco that's close to your infrastructure.

Well, I'll take the first question. With the chart again that Brannen referenced, you have existing gas and gas rating units that are far in excess of the 80 TBtu. So our view -- I mean, year-end would be extremely conservative. We think it's actually quite a bit sooner than that. I actually think that the entire -- the entirety of the island's distillate fuel will potentially be ready to transition to gas by the end of the year. So far beyond the 80, I think that the $300 million is what the opportunity set is of incremental fuel. With respect to the third question, it's just a matter of logistics, right? We're kind of modestly experts at logistics. So we have significant logistics on the island. The key to it all, of course, is having the terminal and the wherewithal to then both move gas within San Juan, but then without San Juan. So we make a very, very significant amount of movement of ISO containers to the various sites today. I think on the ships, I'll say this without actually foundation. We might do more ship-to-ship transfers of LNG and fuel in our system than any other company in the world. So we do vast amounts of LNG transfers from ship to ship. And these all figure in the logistics chain of how you actually provide the fuel onto the island. So -- now it's just -- and it's not a complicated math, Craig, it's basically -- it's just trucks and personnel and kind of regas equipment. But it's all enabled by the terminal and by the logistics would get the gas onto the island.

And on the sale of the 350 -- well, the 425 megawatts, I thought I had heard in prior calls that the 350-megawatt modular generation FEMA contract cost $500 million of CapEx to execute. I guess, that was partly inflated because of speed. But you're selling 425 megawatts for $373 million. So net of any ending contract settlements, are you taking a loss on sale? And are you retaining any newly built infrastructure that would help service the power plants in the future?

Yes. This is Brannen. I can take that one. So I'd say maybe 2 things. I think the short answer to your question is no. I think or it's worth so, it would be kind of de minimis. I think the way to think about it, though, is we installed a bunch of kit, which also included regas and other infrastructure, what was sold was just the power. So if you look at kind of what we have on the books for power and then what we sold it for, it's effectively equivalent. And then we retained all the other infrastructure, for example, regas, et cetera, which obviously accrues significant benefits to NFE as it starts to service not only what we have in place, but additional things, for example, in Palo Seco like the MegaGen. So I think that's what you should expect there, for sure. And then also kind of come back to one of your questions, I think, which was around Cheniere incentive payment and then a small question about logistics. So the Cheniere contract, which is public, has a provision, as you rightly point out that entitles Cheniere to receive 50% of any actual fuel savings that it delivers. And then the way that contract works is this particular set of events would qualify as a fuel savings initiative. So our expectation would be if you use the 73% example that was quoted earlier on the phone, just illustrative, then what Cheniere should expect is to receive 50% of the 27% of the discount to diesel on their side to kind of go into what it would calculate for the fuel incentive payment, which would presumably start this year. And then the last point is just, and I know because you cover this space so well, keep in mind that plants such as [indiscernible] that may be gas capable today and maybe are a little farther from the San Juan terminal. There are significant costs that come out of that plant when you switch to gas, like the easiest example is an [ LPSA ] which are quite expensive in terms of just the operating cost of the plant. But to operate on gas versus diesel is roughly half the cost per fired hour. So kind of any incremental logistics costs that may exist, which I think would be minimal would likely be offset by savings on long-term contracts to just maintain these plants while they burn gas, not diesel.

We will take our next question from Sherif Elmaghrabi with BTIG.

How do these transactions affect your gas supply? I think you previously talked about roughly 120 TBtus annually coming from third parties. Just wondering how that delta shakes out and where are we on how FLNG 1 is progressing?

In gas, this is. Gas [indiscernible] right now is actually quite matched, right? So our goal is to not take exposure to gas markets. The supply that we would need in Brazil, which is potentially significant, is all indexed to market. So you have kind of spot exposure versus spot market. So that's great. With respect to Puerto Rico right now, this is what we had anticipated. So we are, at this point, very matched with FLNG 1 coming online here any day. That's roughly 70 TBtus use of gas, FLNG 2, which we're now actually under construction or will be, there's another 70. So that's 140. So that's the supply that we see kind of earmarked for Puerto Rico in the short to intermediate term. And obviously, if we are successful and expand our operations there, we would then look to expand our gas supply as well, which is kind of the next phase of it. And with that, I think we're going to wrap it up now. But thanks, everyone, for calling in. Obviously, the opportunity set for us in Puerto Rico continues to be a very robust one, and this is a great kind of expansion. And continuing evolution of our business there. Brazil is something that I don't believe right now is it all factoring the people's numbers and expectations. And given both the duration of that -- those contracts as well as the future possibility for growth there is something we think is very, very valuable, and we're going to look to capitalize on that. And so there should be a lot more to talk about on that in the near term. But there are 2 really, really extraordinary developments for the company, and so we wanted to share that with you. And thank you all for taking the time to participate. Thanks much.

This concludes today's call. Thank you for your participation, and you may now disconnect.