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New Fortress Energy LLC (NFE) Q2 2019 Earnings Call Transcript

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New Fortress Energy, LLC (NASDAQ: NFE)
Q2 2019 Earnings Call
Aug. 13, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen and welcome to the NFE second-quarter earnings conference call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. If anyone should require assistance during the conference, please press * then 0 on your touchtone telephone. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Alan Andreini, Head of Investor Relations. Sir, you may begin.

Alan Andreini -- Head of Investor Relations

Thank you, operator. I would like to welcome all of you to the New Fortress Energy, LLC second quarter 2019 earnings call. Joining me here today are Wes Edens, our CEO and Chairman of the Board, Chris Guinta, our Chief Financial Officer, and Brannen McElmurray, our Chief Development Officer. Throughout the call, we are going to reference the earnings supplement that was posted to the New Fortress Energy website yesterday. If you have not already done so, I'd suggest that you download it now. In addition, we will be discussing some non-GAAP financial measures during the call today. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement.

Now, before I turn the call over to Wes, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC.


Now, I would like to turn the call over to Wes.

Wesley Edens -- Chief Executive Officer

Great. Thanks, Alan. Welcome, everyone. I'm gonna refer to the supplement that Alan mentioned, and I think other folks will follow it as well, so let's start on Page 1. The first six months of the year have been terrific for us. We've had a good start to the year. It's been focused, obviously, intentionally on the development side. Brannen will talk about that in just a second.

As you'll see, when we go through the materials, we're very much transforming from a development company into an operating company, and you'll start to see significant amounts of product flow through our terminals and to our customers and then, of course, associated with that, significant increases in revenue in the next couple of quarters.

Jamaica, we project to reach flow run rate in Q1 2020. Puerto Rico is now days away from the terminal being completed. We expect that to be fully online by the fourth quarter. Mexico is full under construction and expected to be online by the end of Q2 2020.

Downstream, we've got the terminals completed in Jamaica and the two terminals under construction in Puerto Rico and Mexico. The power plants in Jamaica that Brannen will talk about, the 190-megawatt project that JPS has completed, the 150-megawatt project that we have just about completed, are big additional sources of demand for us that are gonna come online here in a matter of days. The pipeline continues to build out. We signed a large-scale MOU in Angola. We're quite close to signing one in a second country, and there's a long, long list of other situations that we are pursuing; 1.6 million gallons of committed volumes added since our last quarterly call.

Next, operational excellence is, of course, at the top of our list. We've had zero recordable safety incidents in the second quarter, 100% availability, 99.4% reliability. We know, in these businesses, that they are serious businesses where the consequences could be extreme if you don't follow the rules and put in place the right operative metrics. We feel really good about where we are right now as a young company there.

Lastly, I'll have Chris spend some time on our financial initiatives. Not to steal his thunder, but we just did sign a binding commitment to finance $180 million of Unistar Jamalco Power Plant down in Jamaica, and we're on a very good path for $1 billion estimated terminal financing sometime in the next six months or so.

Let's get into the deck. If you flip to Page 3, this page tells it all in terms of the volume growth that we expect as these terminals come online. Our average per day throughput in the second quarter was 378,000 gallons per day. It's modestly higher than it was in the first quarter, but not in a meaningful sense. You can see us start to click up in the third quarter of 2019 and then really escalate as we go through the fourth quarter and the early part of next year. Old Harbour comes online -- they've been taking gas from us as they're commissioning. We expect them to be fully deployed by the middle of September, so about a month from now. So, we see that, and then Brannen will talk about both that plant and our plant.

And then you see, in the green, the first volumes that we're gonna get outta Puerto Rico. We expect that to be fully completed by the middle of October. We're working hard on it. Our partner down there, PREPA, is working hard as well. And in the blue, as we see, the volumes start to come through in Jamaica. So, 378,000 gallons per day, second quarter this year. By the second quarter of next year, that's 2.2 million, ending up at 2.6. So, these are our committed volumes only. Don't reflect any of the pipeline activity.

Flip to Page 4, you'll see how that then turns into dollars and cents. So, basically, $48 million in earnings at a terminal level, and then, Q3, going up to $395 million by the time we're fully deployed. So, really, very much, now, the story is just the passage of time. It's gonna be very beneficial from an earnings perspective. I'll talk about what the incremental volumes can be as we go down the path. This is 2.6 million gallons a day of throughput, generates approximately $400 million in terminal earnings by the time they're fully deployed by the middle of next year. We've got about 16 million gallons of total pipeline. If we convert half of that, just as an example, you go from $395 million to $1.7 billion. So, the leverage in the system is extraordinary, and we're now in a good place to start to execute on that.

So, I'm gonna turn it over to Brannen to talk about developments. Brannen.

Brannen McElmurray -- Chief Development Officer

Yep, great. Thank you, Wes. Good morning, everyone. Thank you for joining us. I'll refer to Page 6. We continue to make great progress on our terminal properties, which serve as the backbone of our network and gateways for energy. Importantly, 95% of our committed volumes flow through just four assets -- Montego Bay, Old Harbour, San Juan, and La Paz. Of the four, two are operating, and two are in construction. We expect a flow GAAP through San Juan in Q4. We were just there. It looks terrific, and it looks like it's gonna actually exceed our expectations. These four terminals represent 2.5 million gallons per day of committed throughput. Importantly, we have lots of built-in capacity to serve additional downstream customers as we add to our network.

On Page 7, on the downstream side, which is what we're connecting to our terminals, we've been very productive. We have 5 big projects that consume most of our committed volume, and the balance is taken up by 30 customers, which are typically better credits and pay a little higher price than our baseload customers. Seventy percent of our committed volumes are taken up by just four projects -- Bogue, Old Harbour, Jamalco, and San Juan five and six.

Bogue, as you know, because we talk about it frequently, was our original power plant that we supported through Montego Bay, 120 megawatts. Subsequently, the utility has added an additional turbine, and we think they're also gonna make an upgrade to a substation. So, what started out as 120 megawatts, we believe, will grow to 157 megawatts, over time, with additional capacity added as just the economy would grow in that area. So, we're super excited about the possibility of expanding our additional assets.

In Old Harbour, as Wes mentioned, we have delivered our terminal, so our terminal is up and running; has been providing commission in gas throughout the process. The 190-megawatt power plant developed by the utility looks like it's gonna come online right about the middle of September in terms of fully operational on gas, and we'll continue to support them as they put that asset into baseload operations. So, we're super excited about that particular project.

Of the four that I referenced, two are operating, as I mentioned, and two are under construction. Importantly, in San Juan, which we're building a terminal, we're also assisting PREPA, the utility who owns a 440-megawatt power plant there, in the conversion of that unit from diesel to natural gas. The conversion has begun, which we're taking responsibility for. We expect to deliver those units in Q4. Importantly, we think that that's gonna be a terrific baseload customer for that terminal.

Jamalco, which is a power plant we've taken responsibility for, 150 megawatts equivalent, 100 megawatts of electricity, and 50 megawatts of steam, is on time and on budget, and we expect to deliver that in Q4. Importantly, that gives us just another set of experiences to go develop additional power plants. That was a green field.

Then I'll flip to Page 8. We continue to add downstream assets to our existing terminal properties. The two categories that we focus on in the downstream developments are power plants and data centers. Power plants, as you know, require constant availability in supply of feed gas for fuel, so they're terrific customers for our terminals. Data centers are a very close approximation for that. Essentially, they're industrial facilities. Seventy percent of their operating costs are power. The key ingredient to making a data center work is basically cheap, reliable power. So, we're super excited about potentially adding data center properties as just another thing that we look at as a downstream asset.

Essentially, for the data center side, these are 24/7 users of power. Terrific credits because they're typically used by people like Microsoft, Google, Facebook, Amazon, and Apple. So, in most of the markets that we're looking at, the data center piece is a real potential customer that we can add along to our other power plant and other downstream users.

Just to put it in context, in the world, in 2018, the top five internet companies spent about $77 billion on data center infrastructure in 2018. In 2019, we expect the industry to spend $120 billion, which implies about 15 gigawatts of power that they'll consume. Microsoft, alone, is building about 85 megawatts per week to keep up with their cloud business. So, this is a real trend that we're following. Essentially, they need the core asset that we're building, which is reliable cheap energy.

On the power side, just to put it in context, we have about 850 megawatts in development and about 5 gigawatts in discussion; some of which we would take responsibility for; some of which our customers would take responsibility for. On the data center side, we have about 300 megawatts in development, currently, and about 200 megawatts in discussions, which represents about 1 million gallons per day.

Wesley Edens -- Chief Executive Officer

Great. Yeah, I can't emphasize enough, I think the downstream assets we develop around these terminals are, in many respects, our most important projects. We basically end up creating our own demand. We're, essentially, negotiating with ourselves, so we know the guy who owns the data centers if we're building data centers. So, the power project is in terrific shape. The data center in development that Brannen referenced feels, to me, like we are still in the very early innings of what is a very, very long game. I think the core asset that we have, which is power, is really the raw material that really drives these things. So, we'll keep a good eye on this. We have very little in our volumes anticipating building this stuff, but I think there's a lot of promise there, so it's well done by Brannen and the others.

So, flipping to the next section, if you look at Page 10, the core of our business is our terminals. So, the four that we list -- Montego Bay, Old Harbour are already commissioned. San Juan will be commissioned in the third quarter, first gas in Q4. La Paz just behind it, so done in the first half of next year, fully online by Q2 2020.

Two projects that we are in development on, right now, in Angola, Luanda, the capital city. There's one in the Central Harbor. Soyo in the north, it's an offshore facility that would serve as a power plant and other assets up in the north of the country. Shannon, Ireland is what Brannen just referenced. If you look at the picture back on Page 8, that's a rendering of what we think the data center development will be there. There's an associated terminal and power plant as well.

Page 11, the operating leverage of the business is extraordinary. As I say, in the infrastructure business, if you wanna lose all your money, you build something for one purpose and don't use it. That's a bad outcome. The flipside is also true though. If you can build infrastructure for one purpose and then use it for two or three or four, it's very little in marginal costs, and it can be extraordinary margins, and that's, essentially, what we have right now.

So, the bar chart on the left-hand side here, committed volumes, right now, as they flow through, $395 million in terminal level earnings. If we convert, of the 16 million gallons of pipelines, of conversations we're having right now, converting 50% of that would add another $1.7 billion in earnings. So, it's an extraordinary amount of growth. The case study on the right-hand side, this is actually a rendering of actual customer flows that we're exploring right now. So, building the terminal in the north in San Juan Harbour. We then look at power plants to the west. We look at customers in the south. We look at industrial customers along the edges of the country. So, we think there's gonna be many, many customers for us in Puerto Rico that will all come outta this project that we've built and Brannen brings online here in the near time. Brannen?

Brannen McElmurray -- Chief Development Officer

Yep, you bet. As Wes alluded to at the beginning of the call, we are incessantly focused on our operations for two reasons. One, from a reputation standpoint, you have to be perfect, and then, from a human standpoint, we have lots of people that work for us in our industrial properties, and so we need to be good stewards so we can make sure that they go home every day and can see their families.

On Page 13, I'm gonna highlight the four metrics that we track. On the health and safety and environmental, importantly, we've had zero incidents this quarter, which maintains our extremely good and, we believe, world-class record in this particular category. So, we've had zero work incidents, zero environmental issues, and zero health and process issues.

On the availability side, which, again, is reputational, this metric tracks our ability to serve our customers when needed. For this quarter, we were 100%, which means none of our customers ever did not get service as a result of something that we did. This is a statistic that's been pretty consistent for us throughout our operating history, and we continue to improve and remain vigilant on that. From a reliability standpoint, which is, essentially, how man run hours we can get out of our assets, we continue to maintain 99% plus, which includes counting for maintenance, both scheduled and unscheduled. So, we love how the assets are performing, which I think reflects how we think about it from a design, construction, and operational perspective.

And then I think the statistic that I'm, personally, most proud of, because I think it reflects innovative and differentiating experience on our side, we have over 4,100 LNG truck and ship transfers, which, importantly, is the most in this hemisphere. Whereas we started as a new player in the business, we've quickly grown into the most experienced player. This particular set of experiences, we leverage for credibility for our customers but also credentializing for our regulators. So, for example, we've taken U.S. Coast Guard to our properties in Jamaica and ridden them around on our ships as we did a ship-to-ship transfer, and they got to watch our operation and, that technology, they brought back to the U.S. in the ports in which we operate. So, now, I'll turn it over [inaudible].

Wesley Edens -- Chief Executive Officer

One thing worth mentioning is the current state of affairs with the LNG markets. So, as you can see from the graph, it's been a tough year for prices for the LNG, given our point of view, which we are quite short cargos. It's been a very beneficial outcome. It allows us to lower our forecast. The forecast in Chris' financial model has gone from $6.50 price of LNG down to $5.50. That's a big, big win for us. At our current volumes, every $1 is worth a little over $100 million per year, so it's very significant. We are, now, looking very hard at locking in prices and terms over the next five years. It'll facilitate, I think, our investors having a good and clear view of what the earnings forecast is gonna be going forward. It also helps us, I think, on the financing side. So, I would expect, in the next 30 to 60 to 90 days that we will make some new material additions to our portfolio and lock in these lower prices.

My own view of this is I think what this is reflecting right now is the abundance of supply and lots of uncertainty about trade, in particular in the East with all the stuff that's going on in China. They've been a big off-taker, obviously, historically. Given all the trade challenges that are going back and forth between the U.S. and China, that's one of the things that has drawn the uncertainty. It's also been an unseasonably difficult market in Europe. Storage is already full here as you head into the winter months. So, there's a series of technical factors that I think are addressing this. I do think, in the long term, there's gonna be an excess of demand, and so I think that there's gonna be a good market for LNG down the road. In the short term, this presents a good market opportunity for us and something that we're focused, now, on locking in.

So, Chris?

Christopher Guinta -- Chief Financial Officer

Yeah, great. Thanks, Wes. I'll spend a few quick minutes talking about the financial results from the second quarter of 2019 and then talk about our progress toward our financial goals and initiatives that we laid out on our last quarter call, and then I'll turn the call back over to Wes to talk about our views on valuation. So, first off, I'm directing you to Page 16 in the presentation. The increase in volumes sold from Q2 2018 to Q2 1019 was about 91,000 gallons a day. That's largely driven to the increased gas turbine that turned on in Montego Bay in the very end of 2018. We talked about that on the last call. But then you've also seen increases from Q1 2019 due to additional small-scale customers being served in the Montego Bay facility. The other driver of volume increase, quarter over quarter, in 2019 was related to the Old Harbour Terminal starting to take commission in gas to supply to the Old Harbour Power Plant. Going down to revenue, the increase is, again, largely driven by additional volumes.

Then, if you look at the operating margin line, one of the things that we talked about on the last quarter call was an expensive cargo that was purchased at the end of 2018. It took us a little bit longer than expected to burn through that cargo just due to the volumes that were being taken by the Old Harbour Power Plant for commissioning, but I'm pleased to say that that cargo is entirely behind us, and we should see the centric of cargos, that have been discussed previously, being burnt through the remainder of 2019.

On operating margin, the other driver there is an increase from Q2 2018 related to the Golar Freeze being the FSRU, the floating/storage regasification unit, that's on-site and at the Old Harbour Terminal. Perhaps the best news is that this is the last quarter we expect to see a negative operating margin. As Wes said, as additional volumes are turning on, both in Old Harbour, the small-scale volumes running through Montego Bay, and then when we introduce gas into San Juan later this quarter, you'll see us turn to an operating margin positive number going forward.

Just moving down to the bottom of the page to talk very quickly about the balance sheet, cash on hand, at the end of the quarter, sits around $260 million. We've added a line here, which shows a pro forma cash on hand of $438 million. The bridge between the 2 is the $180 million committed, fully underwritten bond financing that we have from National Commercial Bank in Jamaica, which we're extremely pleased to partner with and I'll talk about further. But the big takeaway on this number is that $438 million cash on hand fully funds every project that you've committed to at this point. So, that includes the completion of the Jamalco Power Plant in Jamaica, the Old Harbour Terminal -- anything that's remaining there -- the San Juan Terminal, and the La Paz Terminal are all fully funded with cash on the balance sheet, plus the pro forma financing.

Moving to Page 17, this is an update of what we had in the Q1 call, but just quickly talking about our goals from a financing perspective. The first one was obtaining a commitment in financing for the Jamalco Power Plant in Jamaica. We have $180 million fully underwritten commitment. Those bonds -- and we'll talk a little bit more about them further on Page 18 -- they're non-recourse back to NFE, and, importantly, NFE still has the cash flow generated from the gas sales agreement from the Old Harbour Terminal to the Jamalco Power Plant.

The terminal financing that Wes alluded to as well -- when we think about the cash flow at run rate of about $400 million, you should be able to get somewhere between 3 to 4 turns of debt on that cash flow stream. So, we are anticipating going back out to the market later this year, early Q1, to put in place a more permanent terminal financing secured just by the terminals themselves and the contracts that they have. What this does, and the reason it's sequenced in this fashion, is that it allows you, then, to free up the liquefier in Pennsylvania, and we would then seek to fund the remaining costs of the construction of the liquefier through some of the proceeds of that financing, plus some additional project-level debt just back to the Pennsylvania facility.

On Page 18, I won't go through it in detail, but this just outlines the cost of the debt and the collateral package related to the Jamalco financing. What I'm most excited about is that this is about $165 million of third-party costs, plus some owner's costs, in order to build the facility. We were able to finance $180 million against those costs. Importantly, we then retained the equity interest in the power plant, and the debt service -- the cash flows to the Jamalco facility, minus the debt service, still produces about $8 to $9 million a year of cash flow. That's as long as you're in compliance with your debt governance, you can dividend back to the parent. It allows a lot of upside beyond what we were forecasting on a set.

Wes, I'll turn the call back over to you.

Wesley Edens -- Chief Executive Officer

Great. Thanks, Chris. Just Page 19 and 20, I'll go through this quickly, and then we'll open it up for questions. Talk about valuation. The big picture for the company, we think the market opportunity for it is massive. There is, virtually, an unlimited demand for our assets and our services around the world as this transition from oil-based fuels to some combination of natural gas and renewables goes along.

The key to unlocking those is to develop the infrastructure that we are now expert at, and what we have demonstrated over and over is our ability to go into markets, solve complex infrastructure and building issues, and bring it online in a very short period of time. The margins that result from that are significant, again, because we are doing everything. We're designing. We're building. We're operating. Most importantly, we are paying for it. We are able to then harvest the true economic benefit and still pass through significant savings to our customers. The customer always comes first, in our view, and saving anywhere from 25% to 50%, in some cases, of your energy cost and still have margins that are really extraordinary is really what the business is based on.

Lastly, I get asked the question on competition all the time, and I think there's lots of reasons why I think we have been competitive and why we've been successful in many cases. I think they all stem from, number one, focusing on what the customer has asked for, what the customer needs, and trying to solve their problems rather than trying to put forward a solution that's just simply good for us. It sounds like such a basic ethos, but it, actually, is so important.

As I say all the time, empathy is an incredibly powerful tool and being empathetic about what your customers are looking for, whether they're big or small, and then coming up with a solution that addresses that is really the core of the company. You combine that with design, build, manage, and pay for -- I think I didn't fully understand, before we got into the business, how important it was, on the financing side, to be able to pay for it yourself. Project finance, in these countries, is where projects go to die. So, having the ability to self-fund these in a prudent and thoughtful way -- as we've just demonstrated and Chris talked about it, once you have built an asset and its cash-flowing, there's lots of financing alternatives. When you are building it, when you're in development, there really is no substitute for cold-hard cash and being able to develop it yourself. So, that's what is the picture behind the company.

If you look at Page 20 and how we think that translates into valuation, if you simply take the $395 million run rate to capital -- or run-rate earnings at a terminal level -- and apply a 15 times multiple, which we think is actually quite consistent with other ports, terminals, other infrastructure-related things, that implies an enterprise value of $5.9 billion. Take out $700 million in net debt at that point. It's $31 a share, so a significant premium to where you are today.

If you then look at the committed volumes plus 50% of the discussion volumes, that $31 a share then goes to north of $100 a share. I use this only as an illustration. We don't know how much we're gonna be able to convert on the existing portfolio. In addition, we don't know how big that portfolio can be. We think the pipeline -- when I look at the other transactions, the other things we're looking at around the world, as we add more and more capability in these different markets, not only to grow at our existing terminals but add other jurisdictions, other countries, other opportunities, I think that the future is, virtually, unlimited.

So, this is just meant to be an illustration of what it is. It's all meaningfully higher than where the share price was last night, and we feel extremely good about our prospects for valuation as we go forward for shareholders.

So, with that, let's turn it over to our questions, operator.

Questions and Answers:

Operator

Thank you. Ladies and gentleman, if you have a question at this time, please press the * followed by the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. Once again, to ask a question, please press * and then 1 now. And our first question comes from Devin Ryan from JMP Securities. Your line is open.

Devin Ryan -- JMP Securities -- Analyst

Great. Good morning, guys. Thanks for taking my questions. I guess first question, on the downstream facility -- so, clearly, you guys are having a lot of success, and I think the opportunity set has been evolving quite a bit, like the data center opportunity, which, at least sounds to us, bigger than initially articulated. If possible, just expand a little bit more on competitive positioning to win deals with these customers. I think you mentioned negotiating against yourself. So, how is the full array of services and the complex services that you can offer different than what competitors can offer, and why is the model difficult to replicate?

Wesley Edens -- Chief Executive Officer

Well, specifically on the data center part of it -- and Brannen touched on this -- 70% of all operating expense at the data center is power. In the simplest of simple terms -- and this is meant to be an illustration, not an actual example -- when we think of data centers, we think of industrial buildings with really, really good air conditioning and really reliable power. And, as a firm, a different part of the firm, we developed 8-10 million square feet -- I think we've developed more industrial space in South Florida than the next five or six developers put together. So, we've had a considerable amount of experience on that side. And there are obvious differences between that and what happens to the shell or the data center. But the bulk of the magic at a data center happens inside and is done by the customer themselves.

Our addition to that is to design and build the shell and, most importantly to develop reliable, redundant, and inexpensive power. I think it may well be the case that, at the end of the day, we are supposed to be developing data centers next to all of our power sources because we think that those two things are so synergistic.

I touched on it before. I do think that putting the customers' needs first sounds like such a simple thing, but we see it violated over and over again where people are asked to provide a solution and, instead, come back what looks good for them as opposed to what looks good for the customer. So, that's a very, very basic ethos, but it's the headwaters of our discussions.

Number two is having the ability to do it all yourself. I think that an example we're using in Shannon -- we certainly are keen to work with the big data center users, and we're talking to all of them, and we've had really robust discussions with them. At the end of the day, I'm not afraid of actually developing something on our own and figuring it out that way as well. There's just no substitute and doing so in a prudent manner. These are not massive expenditures, but there's no substitute for actually doing things to really learn from them. The benefit of those experiences you can apply over and over and over again, and that's what we've seen in every aspect of our business.

Frankly, we just don't see everyone putting all these different pieces together. It's not that I don't believe that there is competition because, of course, there is, and it'll increase over time because we're having a lot of success, but I'm a lot more relaxed about it today than I was a year or two ago because, even though there's nothing we do that, independently, is that complicated. Doing them all together really does benefit from the experiences we've had. I think for somebody else to then go and compete with that, they need to have those experiences as well, and it's a pretty big world. So, we feel really good about the competitive landscape.

Devin Ryan -- JMP Securities -- Analyst

Great. Thanks for the detail, Wes. And maybe just a follow-up, if I may, on the Pennsylvania liquefier and just -- if we can just go into a little bit more detail there. With LNG costs lower today, much lower than initially modeled as you were building the plan out, how does this impact, I guess, the sense of urgency in Pennsylvania or even impact how you're thinking about the risk/reward and moving forward? I'm sure there's still an economic upside case here, but it also adds a fair amount of complexity to the story, so I'm just curious to hear the case here, whether it's changed at all and then, also, just how you're thinking about the financing there as well.

Wesley Edens -- Chief Executive Officer

Yeah. Look, we've clearly deemphasized a [inaudible] financial model, so there's another $1 of economics that's associated with it in the model, so that's not changed from when we started six months ago publicly. In our model, we're assuming $5.50 LNG. We think that, today, the comparable price that we would create and bring to the ship in Pennsylvania's around $4.00. There still is a benefit there. So, $1.50 times 2.6 million gallons is, roughly, $150 million a year or so. It would be a very good economic -- so, 40% margin on cost, and so we think it's certainly worthwhile to pursue, but the sense of urgency is obviously reduced significantly by the chart that shows what's happened to LNG prices. So, I think it's exactly as Chris laid it out.

I think, as we proceed with the financing, generate excess proceeds, we're probably $150 million of incremental capital away from, really, FID, so it's not a huge pull from there. You can get project financing readily using that kind of leverage. I do think that we will build up there, and I think it'll be successful, and it'll be one more arrow in the quiver in terms of the things that we have done, but we'll do it prudently, and it is not material in the numbers. It's not a part of our prescription right now, I think, two, three, four years from now, it could be important to have your own supply. That's clearly not that case with 30 million tons of production coming on as it is right now and where the supply and demand is, but we're in this for the long haul, and I think, two, three, four years from now, it could be material.

Devin Ryan -- JMP Securities -- Analyst

Okay, understood. Thanks, Wes.

Operator

Thank you. And our next question comes from Ben Nolan from Stifel. Your line is open.

Benjamin Nolan -- Stifel, Nicolaus & Company, Inc. -- Analyst

Great. Thanks, guys. So, I have my one question to follow up. My first question relates to some of the projects that haven't yet been fully committed, specifically Ireland, Angola, and the Dominican Republic. I'm curious what milestones we should be looking for if you, maybe, can give any color as to when you expect those -- or if you have any idea when those might convert from being potential to definitive.

Wesley Edens -- Chief Executive Officer

Yeah, I'd say the chain of events is MOU, followed by, negotiate a terms sheet, followed by GSA, followed by all the permits in hand so you can start construction. So, those are the -- that's the path of development. At the, probably, top of my list -- and Brannen might have a different view of this -- would probably be Ireland is the closest to FID right now. We have a set of permits in hand that we need to enhance --

Operator

Pardon me. This is the operator. We're not able to hear you anymore.

Wesley Edens -- Chief Executive Officer

Operator?

Operator

We can hear you now, sir. You may proceed.

Wesley Edens -- Chief Executive Officer

Okay. Well, I'm not sure where I was -- so, I'll say Ireland, I think, is probably top of the list of the development projects because we've been -- we bought into a project that had had years of work done previous to us. Not precisely what we're planning to build, but it was very, very helpful to it. So, that's on a very good track. Angola, we've had very substantive discussions with them about converting the MOU into a terms sheet and then going down the permitting path.

So, there are actual milestones that we achieved, but I think, from our perspective, what we anticipate updating on is, is the project an MOU? Is it in term sheet? Is it in GSA, so actually assigned and finding commitments? And then where are we on the permitting side? So, obviously, the four terminals -- the two in Jamaica, the one in Puerto Rico, the one in La Paz -- are all completed, so their FID has been in the process of being completed. The other ones are on the path behind that, and there are others that we have not yet gotten to MOU stage that we are contemplating in conversations we're having. So, that's how we anticipate updating for folks.

Benjamin Nolan -- Stifel, Nicolaus & Company, Inc. -- Analyst

Okay. I appreciate that. My next question relates to slide number 10 and the terminal infrastructure that is under development. Just looking at it, it looks like there's a number of different -- and maybe this is for Brannen. I'm not sure, Wes. But a number of different designs, whether they're onshore or offshore or with FSRUs or not. I'm curious if there is some sort of an off-the-shelf design that you're working toward, or do you envision what you're doing being entirely [inaudible] in every situation?

Brannen McElmurray -- Chief Development Officer

This is Brannen. I can take that. So, if you -- rightly, it's a great observation -- look at what we've done, effectively, we've now done one type of every product that we think applies in all the situations that we've seen. So, you can have blended, offshore, and then what we call our hybrid product or hybrid-plus product if you will. We are now moving to the point where we're developing, now, a design for what we would call our 2.0 energy terminals where -- you take the iPhone, which came out 10 years ago as 1.0, look at it, and then, now, we're starting to basically iterate it, probably, once a year, we think, to come up with a reference design that we can roll out in the next model year.

So, from our perspective, the way we think about it is you have an energy terminal, and then, inside that terminal, you have components, and then those components, we believe, will be standard off-the-shelf built, probably, in a climate-controlled fabrication facility in Texas or Europe or Louisiana and then shipped to site on a skid and then plugged in. The huge advantage of that, not only do you get to control quality and cost and your supply chain, generally, in terms of reliability, but, most importantly, you can control your construction time because, typically, two-thirds the cost of every project is the construction. And, in our case, if we can do that construction in a facility that's away from the site, it allows us to run in parallel either our entitlement processes or our site work and our fabrication. So, the goal would be to get from a standing start to delivery in between 9 and 12 months, which makes the product offering extremely compelling.

Plus, because it's repetitive, effectively, we can operate under a standard where everything we build -- the goal is to be 10% cheaper and 10% faster. If you string along enough of those 10%, you're really gonna have a meaningful advantage versus anyone else who tries to come in and compete with you.

Benjamin Nolan -- Stifel, Nicolaus & Company, Inc. -- Analyst

Oh, no, that's very thorough. Appreciate that, Brannen. Certainly, more than I was expecting there. Thanks a lot. I'll turn it over. Thanks.

Operator

Thank you. Our next question comes from Spiro Dounis from Credit Suisse. Your line is open.

Spiro Dounis -- Credit Suisse AG -- Analyst

Hey, good morning, guys. Maybe just starting off with the recent MOUs signed with Angola, just wonder if you could provide a little bit more color there on the scope and potential returns, and, more specifically, are these power plants in place yet, or will you be constructing them, and how should we think about the returns? Should they be similar to the ones you've got on the first few projects, or has that market moved?

Wesley Edens -- Chief Executive Officer

The projects in Angola are, largely, to service existing power plants, so they burn diesel today. It's expensive. It's dirty. They have significant challenges with contaminated fuel. One of the things that happens, sometimes, in these markets is people take the diesel, and they replace it with something else that actually gums up the work, so they have significant downtime in some of their plants from contaminated fuel. It's a replacement fuel strategy, which is the easiest one to execute, frankly, because it's the most obvious benefits to customers, and it's the easiest thing to -- you're serving something very specific. There's a handful of plants in Luanda that are targeted to be converted. There's one new plant -- brank spanking new plant -- that has developed up in Soyo that would be a potential customer, so that's the nature of what it is. We could also add, down the road, other downstream applications, be they power or data centers or others, but that's not contemplated in the scope of what we're looking at, at this moment.

Returns, we think, are very consistent with the other returns we've seen. Obviously, when we look at any situation, we look at what the capital needs are, what we think the environment looks like, the degree of difficulty to execute, etc., and try and make good judgments about what's a fair return, and we think that these returns look very much in line with the other places we're doing business.

Spiro Dounis -- Credit Suisse AG -- Analyst

Understood. Maybe just sticking with Angola, surprised by how quickly you guys are gonna be able to bring that to market, I guess late next year. When do you think you need to convert into the committed category to still hit that target? I guess, what's the latest you've got, and then how do you think about financing that?

Wesley Edens -- Chief Executive Officer

I think that, if it goes as we hope it does, we'll be committed by the end of the year. One of the reasons we can convert those plants quickly is that the marine infrastructure that's in place in Luanda that we believe we can access greatly accelerates the process, I'd say. When Brannen talks about all the different types of things that he has developed -- what starts the discussion, always, is the condition of the marine environment and whether you're able to just plug and play into something that exists or you have to develop it from a standing start. Particularly in Luanda, we think there's a good situation to use their existing port facilities, and so that helps that process. Yeah, I think our hope and expectation, if it moves ahead, is that we would be in a position to have executed it by the end of the year and be providing energy to these guys by this time next year.

Spiro Dounis -- Credit Suisse AG -- Analyst

Okay. And then in terms of financing, are you gonna be able to tap into that billion-dollar facility you guys are targeting, or would this go to another round of financing.

Wesley Edens -- Chief Executive Officer

Yeah, no, we think that -- as Chris said, between cash on hand, the current facility, the debt that we put in place in Jamalco, we can fund everything that we have on the list right now. So, we have excess of capacities for us to fund this. We'll have over $150 million from operations for next year between now and then. So, there's ample sources of capital even before the incremental terminal facility. Certainly, we don't anticipate issue with any equity, so we think we're gonna be well-financed on it.

Spiro Dounis -- Credit Suisse AG -- Analyst

Great. Last one for me. Wes, your point on leveraging the current infrastructure for several uses and really exploiting that operating leverage makes total sense, but you guys are obviously running dual tracks here where you're commercializing what you've got in place and then also going out and ginning up new business. I guess just wondering how you think about not spreading yourself too thin or balancing between maximizing the current terminals and really exploiting that operative leverage versus maybe going out and really getting more into discussion contracts. How do you guys think about the balance there?

Wesley Edens -- Chief Executive Officer

Yeah, I'd say, from an operational standpoint, what we are very focused on is separating out the big terminal developments that -- it's all under Brannen, but he spends a lot of his time and focusing on the big terminal stuff. We then have a very talented small-scale development. Small, not diminutive, but just smaller downstream developments. So, that's how we've organized ourselves. That's what we believe creates scalability across the different platforms. And just as we've seen patterns emerge on the terminal side, we also see patterns emerge on the downstream side, so we see customers needing the same kinda solutions, whether it's a resort in Baker's Bay, Bahamas or a resort in Cabo San Lucas. So, their needs are similar, and so without trying to recreate the wheel and use existing experiences, we think we can actually export a lot of the experiences we've had in one place to another.

We're very focused on converting the terminals that are in construction and the downstream stuff that's under construction into cash flow and then adding on to it in a prudent manner. There is, literally, hardly, a day or a week that goes by without some new opportunity cropping up around the globe. I tell everyone that the decision to really pursue something in an earnest manner is, in certain respects, our most important decisions because it takes not just a commitment of capital, but it also takes a commitment of time and focus. So, we pass on far more things that we actually go and pursue at the top of the whole pyramid. Hopefully, as we develop as a company, we'll be able to take on more and more of those things without spreading ourselves too thin.

Spiro Dounis -- Credit Suisse AG -- Analyst

Got it. Appreciate the color. Thanks, everyone.

Operator

Thank you. And, again, ladies and gentlemen, to ask a question, please press * and then 1 now. And our next question comes from -- and I'm sorry. We will be taking our final question from Jon Chappell from Evercore. Your line is open.

Jonathan Chappell -- Evercore ISI -- Analyst

Thank you. Good morning, guys. Wes and Chris, I wanna follow up on that last question just to be clear. So, I think Chris did a great job of laying out the financing for the terminals under construction and committed at this point. Wes, you just said that you think you'd have the financing for everything on the list. So, Angola makes sense, I think, from that size, but Shannon is pretty huge from a volume perspective. So, can you remind us what the capital commitments would be if you move forward with Shannon? And, based on the financing you have committed today, even if we talk about the entire potential billion dollars, would that fully cover Shannon, or would you need something else for Ireland, specifically?

Wesley Edens -- Chief Executive Officer

The short answer is, yes, it would. But specifically, the terminal that is being designed right now, we think the total cost of that is roughly a couple hundred million dollars. It's basically a peer-like financing, so kind of a fancy doc in my non-technical perspective and then need to provide for the LNG infrastructure, all the onshore vaporization, and then power plant. That's a couple hundred million dollars pre-power for that. Power and the downstream use of data centers, we think, will be tied together. And given the nature of the customers we're talking to, we think we have many, many financing options for them. So, whether we choose to project finance that or it comes under the billion-dollar facility, I think there's lots of different ways to finance it. So, you're in a jurisdiction that is, obviously, a very high credit quality. You're talking about customers that are, themselves, very high credit quality. So, the financing aspect of it becomes quite a bit easier.

Also, you won't build -- we don't anticipate building 500 megawatts of power and 500 megawatts worth of downstream development at the same moment in time. I mean, anything is possible, but it's much more likely to be scaled into. And so, I think the part that you can't scale into is the couple hundred million dollars for the terminal. We hope to be FID on that sometime around the end of the year in terms of when we file our permits and start all that some time next summer. How the downstream development turns out will have a lot to do with how we eventually look to finance it.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay, that makes sense. And then, Chris, if we go to Page 14 and you talk about that new $5.50 run rate. As Wes said, taking it down from $6.50 to $5.50 is pretty meaningful. I assume that's not for the third quarter, so let's be clear about that. And then, how do you plan on getting there? I know Wes mentioned something about locking in for five years. Can you just talk about how we get comfort in a very volatile commodity market that has massive seasonality, typically, locking in $5.50 for a five-year period?

Wesley Edens -- Chief Executive Officer

If you just simply take the math of Henry Hub times $1.15 plus $2.50 or so, you end up at, roughly, $5.50 LNG. That's using the base rate of Henry Hub of $2.75--

Christopher Guinta -- Chief Financial Officer

Two seventy-five, which is well below now. If you look at the five-year [inaudible] it's actually -- if you use the $2.50 toll, it ranges between $5.30 and $5.55.

Wesley Edens -- Chief Executive Officer

And, roughly, what, 85%-90% of our downstream customers are Henry Hub-based. So, at the end of the day, picking the Henry Hub price, if it's $2.75 or $2.50 or $3.00 or $2.25, is gonna be mirrored on the downstream demand side. So, those two things move in lockstep, and I am highly, highly confident that we're gonna be able to generate supply somewhere in that range, and we'll, obviously, update it with you with specific numbers when we have it. Right now, there's lots of folks that we're talking to, and we think that locking in five, or maybe five-plus, years of supply for these existing assets is the right thing to do. But from an earning stability perspective -- and, also, it'll help the financability of our terminals, we think, significantly. And so, those two things together are why we think it's a good idea, and I hope, by the time we have another quarterly call, we'll have a good update for you then.

Jonathan Chappell -- Evercore ISI -- Analyst

Mm-hmm. That's definitely a good idea as far as visibility. Just wanna be clear though, this isn't something -- we're in the middle of August right now. The third quarter, we shouldn't be thinking about $5.50. We should be thinking about something, maybe, closer to historical levels in the seven range. Is that probably right?

Wesley Edens -- Chief Executive Officer

Yeah. I think, from a modeling perspective, I would use next year as a start date of the $5.50. Not that I'm a modeling expert, but that's probably more prudent. I'm hopeful we'll deliver it before then, but I think that that's probably a good place to start with that.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay, that makes sense. And then, final thing, also a little bit of a clarification -- and, Wes, you just laid out $4.00 at the liquefier even versus that $5.50. It's a massive return on the equity you would need to put into that project. So, to say it's not really a focus right now, can you just clarify those comments? Is it still possible for a 2021 start time for the liquefier based on how you see the next 6 to 12 months progressing, or should we put that further on the back burner as you focus more on the downstream together?

Wesley Edens -- Chief Executive Officer

Where do you think you are, Brannen, right now, in terms of premise and timing?

Brannen McElmurray -- Chief Development Officer

Yep, sure. So, this is Brannen. From the plant side, on the permits, we have permits in hand. I know this has come up on a couple calls, but we've actually received our air permit, so it's been issued. So, on the site now, if you were to go look, we're clearing and grading, so we're leveling it and getting ready for the decision that would be made or could be made in terms of moving forward. I think, as Wes has articulated in the past, FID plus 18 months is probably the right way to think about it. In the event that decision was made at the end of the year or in March, you would then have a 2021 online date.

Wesley Edens -- Chief Executive Officer

Yeah. I mean, I think that our thought was that, while we're going through the permitting process, while we're still sorting out the financing for it, it adds more complexity to the story, which I think, frankly, is a net negative in terms of valuation. We do think the numbers are significant in terms of what it can add. Not just this one plant, but the perspective of the others. But before we get to that, let's focus on the terminals, let's execute what we have in hand, and then, when we do have something specific to report on it, we'll go ahead and report. I mean, as Brannen and Chris both said, it's something we fully intend to complete on, and everything has moved very much in lockstep with what our expectations were. Now, we'll just see how it turns out, and I think a marginal $150 million in EBIDTA is a good thing. It certainly is a positive, and we think the returns are excellent, but we'll talk about that in due course.

Jonathan Chappell -- Evercore ISI -- Analyst

Okay. Thanks, Wes. Thanks, Brannen and Chris.

Operator

Thank you. And that does conclude our question and answer session for today's conference. I'd now like to turn the conference back over to Alan Andreini for any closing remarks.

Alan Andreini -- Head of Investor Relations

Thanks, operator. Thank you, all, for participating on today's call. If you have any follow-up questions, please feel free to reach out to me. My contact information is on our Q2 press release. Finally, we look forward to updating you after Q3. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone, have a wonderful day.

Operator

That does conclude today's conference. Thank you for your participation.

Duration: 54 minutes

Call participants:

Alan Andreini -- Head of Investor Relations

Wesley Edens -- Chief Executive Officer

Brannen McElmurray -- Chief Development Officer

Christopher Guinta -- Chief Financial Officer

Devin Ryan -- JMP Securities -- Analyst

Benjamin Nolan -- Stifel, Nicolaus & Company, Inc. -- Analyst

Spiro Dounis -- Credit Suisse AG -- Analyst

Jonathan Chappell -- Evercore ISI -- Analyst

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