Amid strong demand for U.S. LNG, one of the largest liquefaction facilities on the Gulf Coast, Freeport LNG, will be out of service for at least three weeks after yesterday’s explosion.
An explosion shook the Freeport LNG liquefaction plant yesterday morning, with its cause still unclear. An investigation is underway, but according to facility operator Freeport LNG, the facility will remain closed for weeks. It accounts for one-fifth of the total U.S. liquefaction capacity.
The Freeport facility has three liquefaction trains and a fourth is being built. Its current gas processing capacity is 2.1 billion cubic feet per day. With the disruption, the situation of US LNG exports will become problematic, as evidenced by the reaction of the gas market to the news of the explosion.
Initially, prices fell as traders worried that the disruption would reduce US LNG market share, according to a Financial Times report today. Bloomberg noted that the fire means a large amount of gas will remain stranded in the fields amid growing demand for gas abroad.
However, the prices of international LNG markets could react differently because the disruption of Freeport LNG does mean that there will be less natural gas to export, especially to Europe and Asia, thirty energy.
In Europe, gas prices have been falling in recent days as the start of summer reduced immediate demand. An extensive supply of LNG has also contributed to the price trend. With the interruption, this trend could be reversed at some point.
Asian demand, however, is rising sharply as buyers look to create inventory for the winter season, Bloomberg reported this week, which is further supporting rising prices.
“LNG prices remain well above where they normally are, even adjusting for rising crude oil prices,” Sanford C. Bernstein analysts said in a note quoted by Bloomberg. “We hope this is a calm before what looks like a harsh winter for consumers.”
By Irina Slav for Oilprice.com
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