The explosion of the Freeport LNG plant has increased pressure on global supplies

HOUSTON (Reuters) – Freeport LNG, operator of one of the largest US export plants for liquefied natural gas, will shutdown for at least three weeks after an explosion at its facility on the Texas Gulf Coast, raising the risk of a shortage. Especially in Europe.

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.

US natural gas markets declined as traders expected a power outage to reduce domestic demand.

The market impact spread on Thursday to push European gas prices up to a fifth as traders fear the loss of US shipments will put pressure on a market already struggling with lower Russian supplies.

Analysts said European buyers have shunned Russian LNG due to its invasion of Ukraine – actions Moscow calls a “special military operation” – and rising demand in China has added to the pressure.

“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.”

In Europe, the front month benchmark gas contract in the Dutch TTF hub rose 12.6% to 88.70 euros per megawatt-hour in morning trading. British gas prices also jumped, with the next day’s contract rising 22.1% to 105p per heat. Prices subsequently calmed down during the session, rising between 5% and 11%.

Traders said it was difficult to assess the impact on prices for JKM – which is widely used as the benchmark for Asian liquefied natural gas – because it depends on the extent of the damage and how well the plant is back in business.

JKM prices are hovering around $22.5 per million British thermal units (mmBtu). It stays at a discounted price of around $3 per MMBtu over European TTF rates ags.

Destination Europe

The Freeport 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).

Analysts at data information company ICIS said in a tweet that 68% of Freeport’s LNG exports in the past three months went to the European Union and Britain.

A European gas trader, who spoke on the condition of anonymity, said gas could be considered a “pivot” if the outage was short-lived, but in the longer term it would strain an already tight market and raise the question of whether Europe could get rid of Russian gas.

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 on Wednesday on concerns that the explosion 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 company spokesman said that an investigation into the explosion had begun, 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.

Additional reporting by Liz Hampton in Denver, Sabrina Valley in Houston, Scott DeSavino in New York, Maura Rashad in London, Nora Bolin in Oslo; Editing by Margarita Choi, Richard Boleyn, Chris Reese, Kenneth Maxwell and Barbara Lewis

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