Blast at Freeport LNG Plant Adds to Supply Concerns

Snow covered transfer lines are seen at the Dominion Cove Point Liquefied Natural Gas (LNG) terminal in Lusby, Maryland, on March 18, 2014. Gary Cameron/ Reuters

A blast at a Freeport LNG facility in Quintana Island, Texas, on June 8 has forced the plant to shut down, raising concerns about natural gas supply issues.

“An incident occurred at the Freeport LNG facility on Quintana Island at about 11:40 am. There were no injuries, all employees and contractors have been accounted for and there is no risk to the surrounding community. The incident investigation will continue,” Freeport LNG said in a statement, according to Click2Houston. It is unknown what caused the explosion. The facility will remain closed for a minimum of three weeks.

The Freeport facility has the capacity to process up to 2.1 billion cubic feet per day (bcfd) of liquefied natural gas (LNG). At full capacity, the plant can export 15 million tonnes per annum (MTPA) of the liquid gas. The company—currently expanding capacity to 20 MTPA—processes gas for BP, Osaka Gas, Kansai Electric, Total Energies, and SK E&S.

Last year, total U.S. LNG exports hit a record high of 9.7 bcfd. The Freeport plant accounts for 20 percent of the country’s LNG processing.

In March, the Freeport LNG facility saw the loading of 21 cargoes, which collectively carried an estimated 64 billion cubic feet of gas to China, South Korea, and Europe, according to the U.S. Department of Energy. That number is up from 19 in January and 15 in February.

“This is a significant production outage at a major U.S facility,” Alex Munton, director of global gas and LNG at research firm Rapidan Energy, told Reuters. “It’s going to mean one thing: shortages. The competition for spot LNG is going to drive global LNG prices higher.”

According to Alex Froley, LNG analyst at data intelligence firm ICIS, a three-week shutdown of the Freeport plant will result in the loss of 940,000 tonnes of LNG. Based on an average cargo size of around 70,000 tonnes, this will be equivalent to the loss of around 13 cargoes.

The loss of Freeport LNG supplies comes as Europe is scrambling to find alternatives to Russian gas imports. Ever since Russia invaded Ukraine in late February, the European Union has been trying to completely rid itself of Russian gas. EU nations are planning to increase their LNG imports from other places as a result.

However, such a move has a supply-demand consequence. If the EU were to “sharply reduce” Russian gas imports, global LNG demand would exceed supply by 26 million tons by the end of this year, according to an analysis by consultancy Rystad Energy. The EU is planning to cut down Russian gas dependence by two-thirds this year.

One European gas trader, speaking anonymously, told Reuters that the loss of Freeport LNG exports can be tolerated if the outage remains limited to the short term. However, a longer-term outage could add strain to an already stressed market. It also raises the question of whether Europe will be able to shed its dependence on Russian gas.

Around 68 percent of Freeport LNG exports in the last three months went to Britain and the European Union, according to a tweet by ICIS analysts.