Natural gas prices slumped in the United States and soared in Europe on news of an extended shutdown. The facility accounts for about 20% of U.S. LNG exports and has been a major supplier to European buyers seeking alternatives to Russian gas since its invasion of Ukraine.
An explosion and fire on June 8 idled the Quintana, Texas, plant when an over-pressurized pipeline ruptured, the company said on Tuesday. It said processing operations were not damaged. read more
Loss for months of a big U.S. gas buyer knocked down U.S. Henry Hub natural gas futures , which settled at $7.189 per million British thermal units, down more than 17% from the open. [nL1N2Y11AD] read more
European day-ahead gas prices spiked as much as 21% and settled 11.6% higher at 90.43 euros per megawatt hour.
The facility can process 2.1 billion cubic feet per day of natural gas into a supercooled liquid for shipping, and had been running near capacity in recent months, according to consultancy Rystad Energy. Some 1.17 bcfd of its output had been going to Europe as of May, up from 0.81 bcfd in March, Rystad said.
OUTAGE TO HIT EUROPE, CHINA
Europe faces reduced supplies of gas from Russia’s Nord Stream pipeline, which has planned maintenance. China’s LNG demand is expected to recover from COVID-19 shut-ins.
“It’s very serious,” said Alex Munton, director of natural gas and LNG at consultants Rapidan Energy. “We now have a much larger and much more extensive outage at Freeport LNG that will remove more supply from the market than was anticipated last week.”
Freeport said the prolonged outage will remove 40 cargoes, up sharply from its earlier estimate of a three-week outage that would have removed about 13 cargoes. Analysts said between 4 million and 5 million tons of LNG in total will be lost from a 100 million tonne per year market.
“We expect Europe will be the region most impacted by this incident,” analysts at Rystad Energy said this week. The loss of production through September will remove another 2.8 million tonnes from the market, said Alex Froley, LNG analyst at ICIS.
About 70% of Freeport exports in the past few months went to the European Union and Britain, with France, Turkey and Netherlands among the largest European importers this year.
The explosion occurred from a breach in pressurized pipes that transfer LNG from storage tanks to nearby dock facilities, the company said.
There was no damage to the liquefaction trains that chill gas, its processing areas, storage tanks or docks.
The incident is being investigated by the company, U.S. energy and pipeline regulators, and the U.S. Coast Guard. A company spokesperson declined to comment on whether investigators are looking at potential design or structural flaws.
The extended delay of about six months in the return to full operation shows investigators want to understand the cause of the explosion to avoid another fire, outside experts said.
“There is lot of analysis to understand the problem, put in measures of safety and operational regime to make sure it doesn’t happen again,” said Rapidan’s Munton.
The extended outage will ease a U.S. natural gas storage deficit, with inventories now around 300 bcf below the five-year average, according to Al Salazar, a senior vice president at Enverus Intelligence Research.
Paul Cicio, chief executive of the Industrial Energy Consumers of America, a trade group that has called on Congress to limit expanded LNG export permits, said the outage highlighted the impact exports had on costs for U.S. consumers.
“It should be alarming to federal policymakers that the Freeport LNG terminal only exports 2 Bcfd, yet it is having such a significant impact to prices,” he said.