Freeport LNG, one of the largest operators of liquefied natural gas export plants in the United States,on Tuesday said last week's fire damage to 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 lengthier shutdown as the Quintana, Texas, facility produces roughly 20% of U.S. LNG exports and has been a major supplier to Europe, which has sought to move away from Russia since its invasion of Ukraine.
The plant was knocked offline by an explosion and fire on June 8 when an overpressurized pipeline ruptured, the company said on Tuesday, that led to a fireball. Read full story
The delay led to an over 18% drop in U.S. Henry Hub natural gas futures as the outage temporarily removed a big buyer of U.S. gas.
European gas prices rose as much as 21% after the disclosure, with the contract for the day ahead rising to 98 euros per megawatt hour.
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.
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 is expected to increase its demand after reducing LNG purchases due to 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 of three weeks of downtime 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.
The additional, about six-month delay to fully repair the plant stems from investigators wanting to understand the cause of the explosion to assure another fire does not occur.
"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 Munton. "It takes time to be satisfied that things can be restarted safely again."
The explosion occurred in pressurized pipes that transfer LNG from the facilities storage tanks to nearby dock facilities, the company said on Tuesday.
"We expect Europe will be the region most impacted by this incident," analysts at Rystad Energy wrote in a note 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.
(Reuters - Reporting by Liz Hampton, Marwa Rashad, Ruhi Soni; Editing by Marguerita Choy, Sriraj Kalluvila and Arun Koyyur)