New Fortress Gas Deal Raises Clean Energy Yellow Card.
Reprinted from the FT – 30/03/2021
Bond issue to fund the takeover of fossil fuel assets criticised for environmental claims. A floating liquid natural gas vessel built for Golar LNG in Singapore. Financier Wes Edens, a part-owner of Aston Villa football club and the Milwaukee Bucks basketball team, has raised the hackles of green investors after borrowing $1.5bn to fund his gas infrastructure group’s takeover of another fossil fuel operation that it says will help accelerate the world’s transition to clean energy. The funds will in part-finance the acquisition by Edens’ New Fortress Energy of Golar LNG Partners at a $1.9bn enterprise value, which the company says will add ships to transport gas as part of a bigger deal to expand into Brazil.
In marketing the deal to investors last week Edens, who co-founded the $50bn fund manager Fortress Investment Group and set up New Fortress Energy in 2014, touted the company’s commitment to clean energy, while simultaneously outlining plans to expand its global liquefied natural gas business, according to people familiar with the presentation.
The LNG industry offers itself as an alternative to other fossil fuels, on the basis that gas emits less carbon dioxide than oil or coal in combustion. Advocates say it offers a bridge while renewable energy scales up, particularly in countries otherwise dependent on coal and oil. However, natural gas is mainly made up of methane, a potent greenhouse gas that traps more heat in the atmosphere than a molecule of carbon dioxide and contributes to global warming.
Gas production, storage and transport are prone to methane leakage. “While methane tends to receive less attention than CO2, reducing methane emissions will be critical to avoid the worst effects of climate change,” the International Energy Agency said in its 2020 gas report. “We don’t think that natural gas is the best friend for the transition. It’s the coal of tomorrow,” said Charles Portier, a portfolio manager at Mirova, a climate-focused investment management subsidiary of Natixis. “Natural gas is a fossil fuel . . . Natural gas is dangerous.”
The EU-wide classification system is designed to provide companies and investors with a common framework for identifying to what degree economic activities can be considered “environmentally sustainable”. While the New Fortress fundraising is not classed as a green or sustainable bond — a designation that comes with reporting requirements to ensure the money is spent on green or sustainable projects — the company highlighted its environmental benefits when it marketed the deal to investors.
New Fortress says it eventually aims to replace fossil fuels with “affordable zero-emissions hydrogen”, despite its core assets being in natural gas. “From seamlessly converting or building your gas-fired facilities, to reliably and efficiently providing you with clean, affordable natural gas, we can help you save time, money, stress, and even the environment — all by using liquefied natural gas,” the company says on its website.
New Fortress said it provided affordable power and “cleaner fuels” to markets that were reliant on dirty, expensive, and volatile oil-based fuels. It highlighted operations in Jamaica and Puerto Rico that enabled the conversion of existing power generation from diesel to natural gas, which it said had reduced CO2 emissions by 30 per cent and lowered fuel costs to accelerate investments in renewables.
EU considers labeling gas as sustainable in investor rule book “With our projects in Mexico, Nicaragua, Brazil, and other markets, we anticipate even more impactful emissions reductions and fuel savings for customers who would otherwise rely on oil-based fuels,” it said in a statement. Among investors that have been drawn into previous New Fortress bond issues is BlackRock’s $450m global high-yield ESG and credit screened fund, which takes into account companies’ effect on the environment. The fund prohibits investment in coal companies but does not explicitly mention natural gas and invested in New Fortress’s bond issue last year.
“I don’t think that you could say [LNG] is green,” said Helen Wiggs, head of corporate climate at responsible investing group ShareAction. “Coal to clean works faster, and causes less environmental damage along the way, and stops unnecessary investment in [fossil fuel] infrastructure.” Even investors without a strict ESG mandate said New Fortress had benefited from the growing allure of environmentally friendly investments. “They are trying to play the green idea,” said one bond fund manager. “It’s smart.”