Last week, an explosion was reported at a gas liquefaction facility in Texas, which boosted gas prices in Europe. A three-week production shutdown was expected, but it is now known that the shutdown could last until the end of the year. Following the development, gas prices in Europe soared again, while those in the United States fell following the understanding that gas not exported to Europe would remain in the United States.
In a market announcement sent yesterday, Rystad energy analyst Zunkyang Luo said the liquefaction facility has operated close to its maximum capacity in recent months. “Freeport’s facility has announced that the plant will remain closed for three weeks. However, the possible extension of repairs at the facility has not yet been determined, and it may be shut down for a longer period of time,” he added. It is now known that this will indeed be the case.
Luo added that “since the Russian invasion of Ukraine at the end of February 2022, most of the volumes from the disabled liquefaction plant have reached Europe, rising from about 0.81 billion cubic feet as of March, to 1.17 billion cubic feet as of May 2022.” (A cubic foot is equivalent to 7.48 gallons, which is approximately 28 liters. Therefore, 1.17 billion will be 33.17 billion liters approximately cubic meters).
“Freeport LNG has been flexible, rapidly shifting volumes to Europe. Since on average about 76% of its exported quantities in 2022 are uncoordinated, we expect Europe to be the region most affected by this incident,” Luo continued.
Freeport’s liquefied natural gas exports to Europe account for about 10% of its total import volumes, and the continent relies heavily on U.S. export volumes. Since the beginning of the year, import volumes have even gone up, in an attempt to fill the place of Russian gas. “Russia and Qatar are each responsible for about 15% of Europe’s imports, and the remaining third comes from Nigeria, Algeria, South America and the Caribbean.” However, with favorable spot prices, countries like Nigeria and Algeria that produce well below capacity, can increase production to help fill the gap. In addition, larger export facilities in the US “could divert supplies to Europe”.
High energy prices found new support last week as liquefied natural gas markets rose following the explosion at the Freeport plant. It is important to note in this context that in the tight gas market, and against the background of European intentions to reduce dependence on gas imports from Russia, any cessation of gas liquefaction could lead to price increases.
In a recent update posted on the Facebook page on June 8, Freeport LNG said the incident had stabilized. In addition, it states that the company is in the early stages of investigating the explosion.
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