June 14 (Reuters) by Liz Hampton and Marwa Rashad – Freeport LNG, one of the largest operators of liquefied natural gas export terminals in the United States, on Tuesday said the damage from last week’s fire at its Texas plant would keep it fully offline until September with only partial operation through to the year end.
Natural gas prices slumped in the United States and soared in Europe on the news of an extended shutdown at facility that 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.
The Quintana, Texas, plant was idled by an explosion and fire on June 8 when an over-pressurized pipeline ruptured, the company said on Tuesday. It said processing operations were not damaged. read more
The news a big buyer of U.S. gas would be missing from the market for months knocked down U.S. Henry Hub natural gas futures by as much as 18%. Prices were off nearly 17% at $7.441 per million British thermal units at midday.
European day-ahead gas prices jumped 11.6% to 90.43 euros per megawatt hour after initially spiking as much as 21%.
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
The loss of supply came as Europe faces reduced supplies of gas from Russia’s Nord Stream pipeline, which has planned maintenance, and as 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 had previously estimated a minimum three-week outage that would have removed about 13 cargoes. The longer outage will remove 40 cargoes. The delay means between 4 million and 5 million tons of LNG in total will be lost from a 100 million tonne per year market, analysts said.
“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 the plant’s storage tanks to nearby dock facilities, the company said on Tuesday.
None of the facility’s liquefaction trains that chill gas, its processing areas, storage tanks or docks were damaged. An investigation into the cause of the explosion is continuing, Freeport LNG said.
A spokesperson declined to comment on whether investigators are looking at potential design or structural flaws.
The extended, about six-month delay in the plant’s 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 help 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.
(c) Thompson Reuters