Freeport LNG plant shutdown for 3 weeks, disrupting global energy markets

HOUSTON (Reuters) – Freeport LNG, operator of one of the largest US export plants for liquefied natural gas, will close for at least three weeks after an explosion at its Texas Gulf Coast facility.

The fire disrupted US natural gas markets on Wednesday and the impact is likely to spread to European and Asian markets, analysts said.

Freeport LNG, which provides about 20% of LNG processing in the United States, revealed the shutdown late Wednesday after assessing damage to the huge facility.

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Its shutdown is taking away a key resource for markets already strained by European buyers evading Russian LNG over its invasion of Ukraine – actions Moscow calls a “special operation” – and by rising demand in China, analysts said.

“This is a significant production outage at a major US facility,” said Alex Munton, director of global gas and LNG at research firm Rapidan Energy. He said Freeport LNG was shipping about four cargoes per week and that the three-week shutdown would take at least one million tons of LNG off the market.

“It would mean one thing: shortages,” Monton said. “The competition for spot LNG will drive up global LNG prices.”

The plant can process up to 2.1 billion cubic feet of natural gas per day (bcfd), and at full capacity it can export 15 million tons per year (MTPA) of liquid gas. US LNG exports hit a record 9.7 billion cubic feet per day last year, according to the US Energy Information Administration (EIA).

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In March, 21 cargoes were loaded at the Freeport facility, carrying an estimated 64 billion cubic feet of gas to destinations in Europe, South Korea and China, according to the US Department of Energy. That’s up from 15 shipments in February and 19 in January.

US natural gas futures sank after news of the explosion over fears it could disrupt the terminal’s gas demand. They closed nearly 6% lower at $8.699 per million British thermal units (mmBtu), after hitting a 14-year high of 9.664 million British thermal units earlier in the day.

Founded in 2002 by billionaire Michael Smith, Freeport LNG processes gas for companies including BP. (BP.L)Jira, Kansai Electric (9503.T)Osaka gas (9532 T)and SK E&S and TotalEnergies. It is in the midst of expanding the plant’s capacity to 20 million metric tons per year.

A spokesman for the company said that an investigation is underway into the cause of the explosion, without clarifying the cause of the fire.

A US Coast Guard representative said Wednesday a security zone has been set up two miles east and west of the Freeport LNG facility, closing that part of the inshore waterway to vessel traffic.

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Additional reporting by Liz Hampton in Denver, Sabrina Valley in Houston, Scott DeSavino in New York; Editing by Margarita Choi, Richard Boleyn, Chris Reese and Kenneth Maxwell

Our criteria: Thomson Reuters Trust Principles.

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