Freeport LNG Could Be Sidelined for Most of 2022
A longer-than-expected repair period following the 8 June explosion could strand 2 Bcf/D of natural gas in the US.
Freeport LNG is now targeting late 2022 for completion of all necessary repairs and a return to full plant operations following the 8 June explosion at its Quintana Island facility. The time estimate is considerably longer than the initial guidance given of 3 weeks.
Representatives for the LNG plant believe, due to the contained area of the facility physically impacted by the incident, a resumption of partial operations could occur in approximately 90 days, once the safety and security of doing so can be assured, and all regulatory clearances are obtained.
Word of the repair period sent natural gas futures tumbling. The July New York Mercantile Exchange gas futures contract plunged by $1.42 to close at $7.189/MMBtu on 14 June, after dipping to an intraday low of $7.008. The European benchmark Title Transfer Facility prompt contract surged more than $4.00 to finish Tuesday near $30.00. Prices were back on the rise on Wednesday, 15 June, with natural gas prices up more than 4% around midday.
Freeport LNG consists of three trains, each with a capacity of 5.1 mtpa. About 20% of all US LNG exports go through the facility. The sidelined plant will keep around 2 Bcf/D of natural gas supply available through the end of the month. The estimated late 2022 full restart at the plant could free up those volumes for domestic use.
On the morning of 8 June, an incident occurred at the Freeport LNG liquefaction plant on Quintana Island, Texas, that released LNG, leading to the formation and ignition of a natural gas vapor cloud and fire at the facility. The incident occurred in pipe racks that support the transfer of LNG from the storage tanks to the dock facilities. According to the company, none of the liquefaction trains, LNG storage tanks, marine facilities, or LNG process areas were impacted. As reported previously, there were no injuries, and at no time did the incident pose a threat to the surrounding community, according to the company.
According to Freeport LNG, and in accordance with the plant’s safety design parameters, the LNG vapor cloud dispersion and ignition thereof were at all times contained within the fence line of the facility, lasting approximately 10 seconds. The fire and associated smoke visible thereafter were from the burning of materials in and around the location where the incident occurred such as piping insulation and cabling. The was extinguished approximately 40 minutes after the initial incident.
An investigation into the cause of the explosion is ongoing, however there are early indications of a possible overpressure and rupture in a segment of an LNG transfer line.
The Freeport terminal outage comes as the demand for LNG exports, especially in Europe, is running high, due in large part to the shift away from Russian gas supplies following its invasion of Ukraine. Europe has accounted for almost 75% of all US LNG exports this year.
“Ultimately, the overall market impact boils down to how long the outage will last,” wrote Lindsay Schneider, an analyst with RBN Energy in a blog post. “The drop in demand could allow the US to rebuild storage inventories, which are well below both last year and the five-year average and put additional downward pressure on prices. But this incident isn’t just a big deal for the US. That LNG was headed overseas and essential in an extremely tight global market that is still trying to manage the impacts of the war in Ukraine, a rising energy crisis from another LNG exporting nation, Australia, and winter peak demand in Latin America.”
European supplies have already been affected by required maintenance along the Nord Stream 1 pipeline, which delivers gas into Germany. Sanctions against Russia has delayed maintenance programs. Gazprom said it has curbed supplies via the Nord Stream 1 undersea pipeline to Germany to up to 100 million m3/d, down from 167 million m3/d, citing the delayed return of equipment that had been sent for repair. Due to sanctions imposed by Canada on Russia, it is currently impossible for contractor Siemens to return overhauled equipment to Gazprom.