Texas LNG Blast Spells Trouble for Europe

The Freeport LNG blast spells trouble for Europe but opens a potentially lucrative opportunity for North and West African gas exporters to fill the gap.

That’s what Rystad Energy Analyst Zonqiang Luo said in a market note sent to Rigzone late Monday, adding that the Freeport LNG facility has a capacity of around two billion cubic feet per day and had been running close to capacity in recent months.

“The Freeport facility has announced the plant will remain shut for three weeks. However, the possible extend of the damage to the facility is yet to be determined and it may be out of service for longer,” Luo said in the statement.

“Since Russia’s invasion of Ukraine at the end of February 2022, the bulk of volumes [from the facility]  have ended up in Europe, rising from about 0.81 billion cubic feet per day in March to 1.17 billion cubic feet per day in May 2022,” Luo added.

“Freeport LNG has been flexible and quick to divert volumes to Europe since on average around 76 percent of its exported volumes in 2022 are uncontracted, as a result, we expect Europe will be the region most impacted by this incident,” Luo went on to state.

According to the Rystad analyst, Freeport LNG exports to Europe account for about 10 percent of total import volumes into Europe. Luo said in the note that the region relies heavily on U.S. export volumes, “which have accounted for approximately 45 percent of imports since the start of the year”.

“Russia and Qatar each account for about 15 percent of Europe’s import volumes with the remaining third coming from Nigeria, Algeria, Southern America and the Caribbean,” Luo stated in the market note.

“While Freeport LNG is offline, it is unclear which alternative volumes could replace the drop in exports to Europe. However, with favorable spot prices, countries such as Nigeria and Algeria that are producing well below capacity could increase production to help fill the void,” Luo added.

“Additionally, U.S. uncontracted spot volumes from larger exporting facilities including Sabine Pass, Corpus Christi, and Cameron LNG could divert supply to Europe,” Luo continued.

In a market note sent to Rigzone on Saturday, Kayrros highlighted that energy prices found fresh support last week as LNG markets rose with the explosion at the Freeport plant. In the note, Kayrros stated that, in a tight gas market and amid European plans to reduce import dependency on Russia, any outage has the capacity to provoke a “strong” price response.

An incident occurred at the Freeport LNG facility on Quintana Island at about 11.40 am on June 8, according to a statement posted on Freeport LNG’s official Facebook page. In a final update posted on the Facebook page on June 8, Freeport LNG said the incident had been stabilized and outlined that the company was in the early stages of its investigation of the event.

To contact the author, email andreas.exarheas@rigzone.com