Eneva Signs Billion-Dollar Contract for Natural Gas Supply

Eneva, a leading energy company, recently signed a significant contract worth an estimated R$1.2 billion for the supply of natural gas to a thermal power plant owned by Linhares Geração. The contract specifies the supply of up to 1.07 million cubic meters of gas per day in a flexible mode, with deliveries starting from July 1, 2026. This marks a crucial step in Eneva’s long-awaited strategy to unlock more value from its Sergipe Hub through flexible natural gas services.

The Sergipe Hub, set to be connected to the TAG gas pipeline network in the second quarter of 2024, was designed to transport 14 million cubic meters per day. This substantial volume can meet a significant portion of the demand for flexible natural gas from thermal power plants and industrial customers in the Northeast region of Brazil.

The contract between Eneva and Linhares Geração includes two components: a fixed portion for the reservation of capacity on the Floating Storage and Regasification Unit (FSRU) and a variable portion linked to the price of liquefied natural gas (LNG) based on the Japan-Korea-Marker (JKM) index. While the specifics of each component are not disclosed due to the nature of the flexible contract, analysts believe that the fixed revenue is the key component.

According to industry experts, the company’s ability to unlock value from the Sergipe Hub through flexible contracts is promising. If the terms of the recent contract are replicated in future agreements, Eneva could potentially generate an additional R$14.5 billion in contracts solely from its Sergipe Hub.

Eneva’s strategic positioning and growth prospects have garnered favor among investors and analysts. With an attractive valuation compared to historical averages and significant value creation opportunities, the company is well-positioned for thermal dispatch in the second half of 2024. As a result, analysts maintain an outperform rating on Eneva stock with a price target of R$17.34, representing a 35.5% increase from the previous day’s closing price.

Overall, the recent contract signing by Eneva signifies a significant milestone in its strategic roadmap, setting the stage for future growth and value creation in the energy sector.