New Fortress Energy Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. In the normal course of business, the Company encounters several significant types of market risks including commodity and interest rate risks. Commodity Price Risk Commodity price risk is the risk of loss arising from adverse changes in market rates and prices. We are able to limit our exposure to fluctuations in natural gas prices as our pricing in contracts with downstream customers is largely based on the Henry Hub index price plus a contractual spread. Our exposure to market risk associated with LNG price changes may adversely impact our business. In 2022, we entered into a commodity swap transaction as an economic hedge to reduce the risks associated with commodity prices which settled in the first quarter of 2023 resulting in a realized gain of $146.1 million. In January 2023, we entered into a commodity swap transaction, and we recognized an unrealized losses of $2.9 million for the six months ended June 30, 2023 . We currently do not have other derivative instruments to mitigate the effect of fluctuations in LNG prices on our operations; in the future we may enter into additional derivative instruments. Interest Rate Risk The 2025 Notes, 2026 Notes, Equipment Notes, and South Power 2029 Bonds (each defined above or in our Annual Report) were issued with a fixed rate of interest, and as such, a change in interest rates would impact the fair value of the debt outstanding but such a change would have no impact on our results of operations or cash flows. A 100-basis point increase or decrease in the market interest rate would decrease or increase the fair value of our fixed rate debt by approximately $73 million. The sensitivity analysis presented is based on certain simplifying assumptions, including instantaneous change in interest rate and parallel shifts in the yield curve. Interest under the Barcarena Term Loan has a component based on the Secured Overnight Financing Rate ("SOFR"). A 100-basis point increase or decrease in the market interest rate would decrease or increase our annual interest expense by approximately $2 million. 46 Table of Contents Foreign Currency Exchange Risk We have transactions, assets and liabilities denominated in Brazilian reais, and our Brazilian subsidiaries and investments receive income and pay expenses in Brazilian reais. Based on our Brazilian reais revenues and expenses, a 10% depreciation of the U.S. dollar against the Brazilian reais would not significantly decrease our revenue or expenses. As our operations expand in Brazil, our results of operations will be exposed to changes in fluctuations in the Brazilian real, which may materially impact our results of operations. Outside of Brazil, our operations are primarily conducted in U.S. dollars, and as such, our results of operations and cash flows have not materially been impacted by fluctuations due to changes in foreign currency exchange rates. We currently incur a limited amount of costs in foreign jurisdictions other than Brazil that are paid in local currencies. As we expect our international operations to continue to grow in the near term, w e may enter into derivative or hedging transactions with third parties to manage our exposure to changes in foreign currency exchange risks as we expand our international operations.