European gas prices jumped on Thursday after an explosion at one of the biggest US liquefied natural gas export terminals, highlighting the fragility of global supplies as many countries attempt to cut their reliance on Russian energy.
Freeport’s LNG facility in Texas will be closed for at least three weeks after the explosion on Wednesday, cutting off roughly a fifth of US liquefaction capacity, a process by which natural gas is supercooled and loaded on to tankers for delivery overseas.
European wholesale gas prices jumped more than 10 per cent to €88 per megawatt hour, while UK prices for delivery in July surged by a quarter to 163p per therm.
“As a result of today’s fire, Freeport LNG’s liquefaction facility is currently shut down and will remain shut down for a minimum of three weeks,” the company said on Wednesday.
US natural gas prices fell sharply. Futures for July delivery traded at about $8.24 per million British thermal units, down 11 per cent from Tuesday’s settlement, as traders contemplated some domestic supplies being stuck onshore.
The Freeport terminal’s three trains have the capacity to process 2.1bn cubic feet of natural gas per day. That represents about 17 per cent of total US liquefaction capacity of 13bn cu ft/d and 2 per cent of the country’s total natural gas production. Natural gas needs to be liquefied before it is transferred into tankers that ship it across the world.
The cause of the explosion and extent of the damage remained unclear on Wednesday night. Freeport LNG confirmed “an incident” had occurred at about 11.40am local time, adding that there had been no injuries and there was no risk to the surrounding community. It declined to provide further details.
Located on the Texas Gulf coast, Freeport LNG is one of just seven terminals operating in the US, all of which have been running flat-out to supply shipments of fuel to a tight global market.
The US, the world’s biggest natural gas producer, is trying to increase exports to Europe as the continent seeks to cut its dependence on Russian imports.
Under a deal announced by President Joe Biden and European Commission president Ursula von der Leyen, the US pledged to ensure an additional 15bn cu metres reaches Europe this year. Brussels said it would aim to increase annual demand for American LNG by 50bn cu m, equivalent to 4.8bn cu ft/d, by the end of the decade.
The optimistic demand outlook has sparked a flurry of investor interest in the sector. Michael Smith, Freeport LNG’s chief executive, told the Financial Times in April that “the future for US LNG is off the charts”.
The local police department could not be reached for comment regarding Freeport LNG. In a statement carried by local media, law enforcement said the facility had experienced “some sort of explosion” but that there was no evacuation under way.
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