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LNG tank in Texas (2019)
Photo: Marie D. De Jesús / AP
A disaster at a facility owned by Freeport LNG, one of the largest US operators of liquefied natural gas export terminals, is driving gas prices in Europe even higher.
The company said its Texas facility will remain completely offline through September -- and then only partially operational through the end of the year -- due to damage from a fire last week.
With more gas remaining in the US than planned, natural gas prices there collapsed on the news.
In Europe, on the other hand, they rose sharply because supply is now becoming even scarcer.
The plant accounts for around 20 percent of US LNG exports and is also an important supplier for European customers who have been looking for alternatives to Russian gas since Russia invaded Ukraine.
The announced month-long outage of this major terminal operator drove European gas prices up as much as 21 percent, closing 11.6 percent higher at €90.43 per megawatt hour.
Meanwhile, US Henry Hub natural gas futures were pushed lower, closing at $7.189 per million British heat units, more than 17 percent below the opening price.
An explosion and fire on June 8 paralyzed the Quintana, Texas, facility when a pressurized pipeline ruptured, the company said Tuesday.
The manufacturing processes were not damaged.
The facility can process 2.1 billion cubic feet of natural gas per day into a subcooled liquid for transportation and has been nearing capacity in recent months, according to consultancy Rystad Energy.
According to Rystad Energy, about 1.17 billion cubic feet per day were shipped to Europe in May, up from 0.81 billion cubic feet in March.
"This is very serious"
Europe is facing reduced gas supplies from Russia's Nord Stream pipeline, which is scheduled for maintenance.
China's LNG demand is expected to recover from the Covid-19 shutdowns.
"This is very serious," said Alex Munton, director of natural gas and LNG at consulting firm Rapidan Energy.
"We now have a much larger and much more extensive outage at Freeport LNG that will take more supply off the market than was anticipated last week."
Freeport said the extended outage will eliminate 40 charges, well above the previous estimate of a three-week outage that would have affected about 13 charges.
Analysts estimate that a total of between four and five million tons of LNG will be lost in a market of 100 million tons per year.
2.8 million tons less
It can be assumed that "Europe will be hardest hit by this incident," said Rystad Energy analysts this week.
The loss of production through September will remove another 2.8 million tonnes from the market, said Alex Froley, ICIS LNG analyst.
About 70 percent of Freeport's exports went to the European Union and the UK in recent months, with France, Turkey and the Netherlands among the top European importers this year.
The incident at the facility is being investigated by the company, US energy and pipeline regulators and the US Coast Guard.
The explosion was caused by a rupture in the penstocks that carry the LNG from the storage tanks to the nearby docks, the company said.
The liquefaction plants that cool the gas, the processing areas, the storage tanks and the docks were not damaged.
A company spokesman declined to comment on whether investigators are investigating possible design or construction defects.
The long delay of about six months in resuming full operations shows investigators want to understand the cause of the blast to avoid another fire, outside experts said.
“A lot of analysis goes into understanding the problem, taking safety measures and regulating operations to ensure something like this doesn't happen again,” said Rapidan's Munton.
Critical impact of Freeport's LNG terminal
According to Al Salazar, senior vice president at Enverus Intelligence Research, the extended outage will reduce the natural gas storage deficit in the US, where reserves are currently about 300 billion cubic meters below the five-year average.
According to Paul Cicio, executive director of Industrial Energy Consumers of America, a trade group that has asked Congress to limit the expansion of LNG export permits, the outage highlights the impact of exports on costs for US consumers.
"It should alarm federal policymakers," he said, that the Freeport LNG terminal is having such a big impact on prices.
kig/Reuters