European gas prices rose on Thursday after an explosion at one of the largest liquefied natural gas export terminals in the United States, highlighting the fragility of global supplies as many countries try to reduce their dependence on Russian energy.
The Freeport LNG facility in Texas will be closed for at least three weeks after Wednesday’s blast, cutting about a fifth of U.S. liquefaction capacity, a process by which natural gas is supercooled and charged to tanker ships for overseas delivery.
European wholesale gas prices rose more than 10 per cent to 88 euros per megawatt hour, while UK prices for delivery in July rose a quarter to 163 pence per thermal.
“As a result of today’s fire, the Freeport LNG liquefaction facility is currently closed and will remain closed for a minimum of three weeks,” the company said Wednesday.
Natural gas prices in the U.S. fell sharply after the incident, as traders worried about the loss of a significant share of the market. U.S. futures for July delivery were trading at about $ 8.28 per million British thermal units on Thursday morning, 11% lower than Tuesday’s liquidation price, as traders expected domestic supplies they will be trapped on the ground.
The three trains at the Freeport terminal have the capacity to process 2.1 billion cubic feet of natural gas a day. This represents about 17 percent of the total U.S. liquefaction capacity of 13 billion cubic feet / d and 2 percent of the country’s total natural gas production. Natural gas must be liquefied before being transferred to tankers that ship it worldwide.
The cause of the explosion and the extent of the damage were not known Wednesday night. Freeport LNG confirmed that “an incident” had occurred around 11:40 a.m. local time, adding that there had been no injuries and that there was no risk to the surrounding community. He declined to give further details.
Located on the Gulf Coast of Texas, Freeport LNG is one of seven terminals operating in the United States, all of which have operated smoothly to supply fuel shipments to a tight global marketplace.
The US, the world’s largest producer of natural gas, is trying to increase exports to Europe as the continent tries to reduce its dependence on Russian imports.
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Under an agreement announced by President Joe Biden and European Commission President Ursula von der Leyen, the United States has pledged to ensure that an additional 15 billion cubic meters reach Europe this year. Brussels said it would aim to increase annual demand for US LNG by 50 billion cubic meters, equivalent to 4.8 billion cubic feet / d, by the end of the decade.
The optimistic outlook for demand has aroused great interest from investors in the sector. Michael Smith, chief executive of Freeport LNG, told the Financial Times in April that “the future of US LNG is off the charts.”
The local police department could not be reached for comment on Freeport LNG. In a statement released by local media, law enforcement said the facility had experienced “some sort of explosion” but that no evacuation was underway.