Freeport LNG closed for at least three weeks, further tightening global gas market
The Freeport, Texas liquefied natural gas (LNG) export terminal is expected to be offline for at least three weeks after an explosion rocked the facility on Wednesday morning, dealing a blow to an already shattered global gas market. short of supply.
State and federal agencies, including the Pipeline and Hazardous Materials Safety Administration, are assisting Freeport LNG Development LP in an investigation to determine what caused the accident. A spokesperson for the United States Environmental Protection Agency noted that state and local agencies have not asked for his help.
The company has regained incident command, according to state regulators. Freeport spokeswoman Heather Browne said the company would not comment on the extent of the damage, the location of the explosion or the impact on its business operations. She confirmed that the plant will be offline for at least three weeks. No injuries were reported.
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NGI data showed that feed gas nominations for the terminal plunged from about 2 billion cubic feet before Wednesday’s incident to 162 million cubic feet on Thursday. Bloomberg also reported that the terminal declared force majeure.
Worst-case scenario: three months offline?
The company’s estimate for the duration of the outage may be optimistic. Video of the blast, which was brought under control within hours, along with satellite images, showed it happened near the facility’s storage tanks – closer to where ships are loaded.
“I assume the facility is out of service for 90 days in the worst case scenario, depending on the location of the explosion/fire and how long it took to bring it under control,” Het said. Shah from Analytix.AI. “The problems seem far from the three liquefaction trains, and more related to an inlet pipe to one of the storage tanks.”
The facility on Quintana Island, about 65 miles southeast of Houston, produces 2 Bcf/d of LNG. It had been operating at nearly full capacity last month after undergoing maintenance on Train 1 this spring.
Laura Page de Kpler, senior LNG analyst at the data and analytics firm, said the outage is likely to negatively impact the global gas market. The factory delivers about four or five shipments a week, she said. From January 2021 to May, Freeport shipped 19.1 million tons of LNG overseas, or about 18% of all U.S. exports, according to Kpler data.
“We expect the market to tighten in the coming weeks and months as demand for cooling in Northeast Asia picks up, and countries like South America and the Middle East are seeing a seasonal increase in imports,” Page told NGI.
She also noted that the outage is a blow to Europe, which has become “very dependent on LNG to fill its underground storages amid dwindling supplies from Russian pipelines.”
According to the Energy Information Administration, Europe received 74% of all US LNG shipments in the first four months of this year.
TTF up, Henry down
That trend was evident in European markets on Thursday, after a six-day losing streak, when the benchmark Title Transfer Facility (TTF) jumped on news of the Freeport outage.
The incident had the opposite effect in the United States, where Henry Hub futures fell as traders rack up demand loss from the export terminal. Shah told NGI that, depending on the duration of the outage, anywhere from 44 to 182 billion cubic feet could end up in depleted U.S. storage inventory, which should slow recent price increases.
Evercore ISI analysts, led by Sean Morgan, said “the fire could lead to corresponding upward pressure on Europe’s common gas benchmark, namely the Dutch TTF”, further opening up arbitrage. with Henry Hub in the coming weeks.
Some traders in Asia told NGI on Thursday that they were bracing for a jump in Asian and European benchmarks as buyers seek to replace Freeport shipments from limited stocks. The facility has long-term supply contracts with buyers in Japan and South Korea, as well as a trading house and major portfolio players serving demand around the world.
The outage also comes as other LNG terminals and pipelines are undergoing maintenance. Facilities in Norway are offline this week for work, while Russia’s Gazprom PJSC said the TurkStream and Nord Stream 1 pipeline systems serving Europe are due for maintenance from June 21-27 and July 11-20. , respectively.
Workers at Shell plc’s floating Prelude LNG terminal off Australia, which can produce 3.6 million metric tonnes a year, also announced a 12-day strike due to start on Friday over a dispute over compensation .
Jacob Dick and Leticia Gonzales contributed to this story.