New Fortress Energy Faces Regulatory Hurdles in Puerto Rico; Analysts See Upside Potential

New Fortress Energy's $20B gas deal in Puerto Rico has been rejected, causing an 8.1% drop in shares. Despite this setback, analysts suggest significant upside, with an average price target of $5.79, a potential increase of 71.68% from the current price. GuruFocus estimates indicate a GF Value of $25.80, suggesting a potential upside of 665.58% and possible undervaluation.

Puerto Rico's rejection of New Fortress Energy's (NFE) $20 billion natural gas supply contract has sent shockwaves through the energy sector, leading to an 8.1% drop in the company's shares. The decision by Puerto Rico's Financial Oversight and Management Board in early 2025, coupled with subsequent regulatory actions and legal challenges, underscores a pivotal moment for NFE. Let's dissect the implications for investors.

The Deal's Downfall: A Perfect Storm of Risks

The rejected 15-year contract between NFE's subsidiary Genera PR and its gas delivery unit faced intense scrutiny for several structural flaws. Key issues included:

1. Monopolistic Concerns: The contract's terms threatened to grant NFE exclusive control over Puerto Rico's energy market, stifling competition and raising red flags about monopolistic practices [1].
2. Take-or-Pay Clause: Puerto Rico would have been obligated to pay for gas regardless of consumption, exposing ratepayers to potential overpayment [1].
3. Opaque Procurement: The lack of a transparent bidding process raised fairness concerns, with critics alleging favoritism toward NFE [1].
4. Environmental and Safety Risks: NFE's San Juan Bay LNG terminal expansion faced legal challenges for bypassing environmental reviews, with opponents citing risks to nearby communities, including a detention center and critical supply infrastructure [1].

The board's rejection was not isolated. Puerto Rico's Energy Bureau halted Genera's gas plant conversion activities, imposing potential fines of $250,000 per day for non-compliance. Meanwhile, a federal court ruled that NFE's LNG terminal falls under the jurisdiction of the Federal Energy Regulatory Commission (FERC), requiring compliance with environmental and safety regulations previously avoided [1].

Financial and Strategic Crossroads

NFE's financial struggles amplify the urgency of addressing these challenges. The company reported a net loss of $197 million in Q1 2025, with EBITDA declining sharply. Its retreat from Puerto Rico's renewable energy auctions—required by law to achieve 100% clean energy by 2050—further signals misalignment with the island's energy policy. Meanwhile, the temporary extension of its gas supply contract (now at 100 days) pending an open Request for Proposals (RFP) process introduces uncertainty about NFE's long-term role in Puerto Rico's grid [1].

The company's Brazil-based CELBA project, a key growth driver, faces its own hurdles, including delays and rising costs. Investors must weigh NFE's global exposure against its reliance on Puerto Rico, where 30% of its revenue is generated [1].

Investment Implications: Near-Term Risks vs. Long-Term Opportunities

Near-Term Catalysts to Watch

1. FERC Court Ruling: The D.C. Circuit's decision on NFE's appeal of FERC jurisdiction is critical. A favorable ruling could reduce compliance costs and fines; a loss would exacerbate financial pressures [1].
2. RFP Outcome: NFE's ability to secure revised terms in Puerto Rico's competitive bidding process will determine its market share and pricing power [1].
3. Renewables Pivot: Can NFE pivot to align with Puerto Rico's clean energy goals? Its current exclusion from renewables auctions suggests a missed opportunity, but partnerships or infrastructure upgrades could reset its trajectory [1].

Long-Term Risks

1. Regulatory Overreach: Puerto Rico's scrutiny may foreshadow stricter oversight in other markets, such as Brazil or the Caribbean, where NFE operates [1].
2. Competitive Pressure: New entrants in Puerto Rico's energy market could undercut NFE's dominance, particularly as renewables become cost-competitive [1].

Investment Thesis: Caution Precedes Opportunity

For now, NFE's stock (NFG) remains a high-risk bet. The Puerto Rico setback highlights governance missteps, regulatory mismanagement, and a failure to adapt to shifting energy trends. Until NFE demonstrates:

- Compliance with Puerto Rico's environmental and procurement standards,
- A credible path to renewables integration, and
- Improved financial discipline (e.g., reduced debt, stabilized EBITDA),

investors should exercise extreme caution. However, a rebound is possible if NFE can:

1. Win the FERC appeal, reducing legal liabilities.
2. Secure a revised Puerto Rico contract with balanced terms.
3. Diversify its revenue streams by expanding into green hydrogen or grid modernization projects.

Final Verdict

Puerto Rico's halted gas deal is both a warning sign and a wake-up call. NFE's future hinges on its ability to navigate regulatory headwinds, pivot toward sustainability, and rebuild trust. Until then, NFG's stock is best avoided. A speculative "hold" rating is warranted, with a "buy" contingent on positive FERC rulings and a renewed RFP win. For aggressive investors, consider a small position paired with tight stop-losses—this is a high-stakes gamble on NFE's capacity to turn the tide.

Disclosure: The author holds no positions in NFE or related securities.

References:

[1] https://www.ainvest.com/news/puerto-rico-halted-20b-gas-deal-crossroads-fortress-energy-future-2507/
[2] https://seekingalpha.com/news/4466566-new-fortress-20b-puerto-rico-supply-deal-stopped-by-regulator-bloomberg
[3] https://www.tradingview.com/news/reuters.com,2025:newsml_L4N3T71E9:0-new-fortress-energy-falls-after-20-billion-puerto-rico-deal-halt/