Mon, Jun 17 2024 17 June, 2024

New Fortress LNG project in Nicaragua tests U.S. tolerance for commercial ties

The U.S. company New Fortress Energy is quietly preparing to inaugurate an LNG-to-power project in Nicaragua, where deepening repression is testing Washington’s tolerance for commercial engagement.

A view of Managua, the capital of Nicaragua, from Loma de Tiscapa (Photo: Adobe Stock/carles)

New Fortress Energy, which supplies LNG mainly produced in the U.S. to its rapidly growing constellation of terminals focused in Brazil, Mexico, and the Caribbean, rarely talks publicly about its venture in the reclusive Central American country. But as the start-up approaches, the New York-based company will struggle to escape the attention of U.S. lawmakers, human rights advocates and Nicaraguan exiles who are urging a tougher international response to Managuas crackdown on dissent.

New Fortress will deliver the first cargo of U.S. LNG to its floating storage and regasification unit off Nicaraguas Pacific coast by the end of 2024, a person familiar with the project told Gas Outlook. A June 2024 launch date, which the company had announced in its November 2023 quarterly earnings presentation, has been pushed back by a few months because of maritime construction delays. But the companys new 290 MW power station at Puerto Sandino that will use the gas is “ready for commissioning.”

New Fortress did not reply to email requests for comment, and the company could not be reached by telephone at its New York headquarters. On its website, New Fortress says its project “will contribute to Nicaraguas long-term economic development by providing the country [with] firm generation capacity and reducing harmful emissions.”

Once the Nicaragua project is up and running, New Fortress will deliver around eight LNG cargoes per year to run the power plant. With a population of seven million, Nicaragua currently has 1.6 gigawatts of installed generating capacity, mostly comprised of hydroelectric plants and thermal units that operate on heavy fuel oil. The oil comes from Nicaraguas close ally Venezuela under the opaque umbrella of PetroCaribe, the Venezuelan governments regional programme of subsidised oil supply.

According to data from Nicaraguas Energy and Mines Ministry, about a fifth of the countrys generating capacity comes from geothermal plants and wind turbines, substantially underutilising its renewable energy potential. By 2035, the government is aiming to boost hydro, solar, wind, and geothermal capacity by 40%.

Despite Nicaraguas modest size, for New Fortress the country is “a beachhead for all of Central America where power generation is done in a dirty and expensive way” mostly using fuel oil, says Schreiner Parker, senior vice president for Latin America at Rystad Energy. Nicaragua is already interconnected to its neighbours through the regional power grid known as Siepac.

But the Nicaragua project remains deeply fraught, says Diego Rivera, a senior researcher at Columbia Universitys Center on Global Energy Policy. “Commercially this might make sense, but its risky.”

New Fortresss trajectory in Nicaragua took off in 2020. In a trip to Managua in February that year, chief executive Wes Edens, who is known to be less risk-averse than his industry peers, signed a 25-year power purchase agreement with Nicaraguan state-owned electricity distributors Disnorte and Dissur. The following October, Nicaraguas rubber-stamp National Assembly approved a legal framework and extensive tax incentives for the project, estimated at the time to cost $700 million.

Since then, Nicaragua has emerged as a geopolitical battleground and enabler of irregular migration across the U.S. southern border. On May 15th, the Biden administration dialled up sanctions on Nicaragua in response to repression wielded by Nicaraguas president Daniel Ortega and his wife and vice president Rosario Murillo. The new sanctions target Russias new police-training centre, which the U.S. says reinforces the governments crackdown on dissidents, and two Nicaraguan gold-mining companies that it says enrich the regime. One of the gold companies is controlled by Laureano Ortega Murillo, the first couples son who is among individual Nicaraguan officials targeted by Western sanctions.

The Nicaraguan government and its allies in Caracas, Havana, and Moscow that are also subject to U.S.-led sanctions routinely denounce “unilateral coercive measures” that they say are designed to undermine their economies. The U.S. says sanctions are not crafted to punish but rather “to bring about a positive change in behavior.”

In 2022, the United Nations Human Rights Council designated experts to investigate human rights violations committed since 2018. The expertslatest report issued in March “found continuing and ever more pervasive persecution of any dissenting voice in Nicaragua,” with power centralised in the hands of Ortega and Murillo, especially regarding the judicial branch, leading to  “total impunity for authorities.” Dissidents who have been jailed or exiled include politicians, Catholic clergy, university students, and journalists.

Despite its anti-democratic profile, Nicaragua remains an improbable part of the Central America and Dominican Republic free trade agreement with the U.S., known as CAFTA-DR. These trade privileges and the New Fortress LNG project highlight “inconsistencies” in U.S. policy, says Manuel Orozco, who tracks Nicaragua at the Inter-American Dialogue think-tank in Washington. Orozco questions what threshold of “transgressions and provocations” Nicaragua will have to cross to draw a more muscular U.S. response.

In the U.S. Congress, pressure is building. Bipartisan proposed legislation would mandate a review of Nicaraguas trade privileges and broaden the criteria for imposing targeted individual sanctions. “The Ortega regime has committed horrendous human rights abuses against the Nicaraguan people, which have resulted in political instability, violence, and a surge in migration,” said Democratic Party Senator Tim Kaine following the Senate Foreign Relations Committee approval in April of the Restoring Sovereignty and Human Rights in Nicaragua Act, which he co-sponsored with Republican Party Senator Marco Rubio.

Balancing act

Wary of the Trump administrations failed “maximum pressure” policy toward Venezuela, the Biden administration is treading carefully. Rather than steering Nicaragua toward a democratic course, a hawkish U.S. posture might only invite more inroads by Russia. China too is on the march. Beijing has extended a series of project loans to Managua, including a recent $27 million credit to build liquefied petroleum gas (LPG) storage tanks.

As long as the New Fortress LNG project in Nicaragua remains largely under the political radar in Washington, there appears to be little cost to the Biden administration’s hands-off approach toward direct commercial interests, combined with targeted sanctions and pro-democracy rhetoric.

The policy combination could bring broader upsides. In part, LNG would potentially benefit the climate by displacing more polluting fuel oil. The U.S. commercial foothold could also help to drive a wedge between Managua and Caracas, which shores up the Ortega regime by supplying the oil through dark channels. The gas will serve as a classic “bridge” until Nicaragua develops its huge potential for geothermal energy, Parker says.

The Biden administration is leaning into the politics for now. Ortega and Murillo “have isolated Nicaragua by suppressing democracy, failing to respect the human rights of Nicaraguans, deepening collaboration with authoritarian governments like Russia and the PRC (People’s Republic of China) and profiting off of vulnerable migrants,” a State Department official said. “We urge Ortega and Murillo to cease their repression of democracy and allow Nicaraguans to exercise their human rights and fundamental freedoms.”

Consulted by Gas Outlook over how the New Fortress LNG project aligns with U.S. policy toward Nicaragua, the State Department deferred to the company.

As the firm’s delivery of LNG to Nicaragua draws closer, this balancing act will become harder to sustain, especially in the run-up to U.S. presidential elections in November. If Donald Trump returns to the White House next year, U.S. policy toward Nicaragua and its allies would likely pivot back to a hardline posture.

Even if that doesnt happen, New Fortress still faces fundamental uncertainty over Nicaraguas ability or willingness to hold up its end of the gas deal, both Rivera and Parker point out. While the boardroom may aspire to “outlive the autocrat,” Parker asks, “How secure is this in terms of contract sanctity?”