North America Edition │Freeport LNG shutdown threatens to further tighten global gas market

Welcome to the June edition of our Gas & LNG Market Insights. 

The explosion that came out of the south Texas liquefied natural gas terminal, Freeport has put almost a fifth of US capacity out of action.

With Freeport expected to be offline for the next three weeks, we can expect an uptick in US storage injections relative to expectations. This was implied when US Henry Hub (HH) prices fell 6% to $8.70/ MMBtu from a 14-year high of $9.70/MMBtu after the news of the fire. - US Gas Balance Report, June 2022

Extensive details on US gas market implications from the fallout of this event have been shared in our monthly US Gas Balance report, you can also read our full analysis in our complimentary article below.

I also wanted to let you know, that in addition to an already comprehensive solution for analyzing the short-term US gas market balance, our North America Solution’s US Gas Market Fundamentals Dashboard now features outbound pipeline flows for the Appalachian, Permian and Williston basins, in an user-friendly single solution. You can track and analyze:

• Basin-level trade flows including daily pipeline takeaway flows and direction for insights into market drivers and regional balances
• Daily flow data for several key transport systems, including the Permian Basin’s EPNG pipeline, Appalachian Basin’s CGT, Nexus, TET, TexasTrans, TGP and Transco pipelines, as well as, Bakken’s Alliance and NBPL pipelines 
• Daily power data to keep a pulse on US gas demand

As you can see, Gas for power burn has been soaring this month - daily US gas for power generation has already exceeded last year’s June peak:

With Freeport LNG offline, US feedgas volumes have fallen to 10.2 Bcfd this week, alongside a 30% decline in US LNG export terminal utilization rates.

What are the implications on the short-term US gas market balance?  

Since the commentary below, and given further announcements from Freeport LNG opeartors and the extension of the export terminal outage, we now forecast significant market relief by boosting domestic storage inventories throughout the year. More detail and data are available from our North America Gas Analytics and US Gas Market Fundamentals Dashboard.

Thanks for reading.

Emily McClain, VP, North America Solution 

The following article is a complimentary commentary from our North America Gas Market Analytics Solution. If you are interested in learning more about this solution, please visit our webpage.

Freeport LNG shutdown threatens to further tighten global gas market

It has been over a week since the explosion which led to a fire at the US export facility Freeport LNG in Quintana Island, Texas which has been an essential supplier of LNG to Europe in recent months. As we reported last week, LNG exports from the plant have fallen by around 60% to about 1.35 billion cubic feet per day (Bcfd) as a result of the fire, with the facility expected to be offline for the next three weeks. This commentary assesses the impacts of the protracted outage, viable alternatives to sustain European imports and the impact on domestic and international gas prices.

Freeport LNG has a capacity of around 2 Bcfd and had been running close to nameplate capacity in recent months. Since Russia’s invasion of Ukraine at end-February 2022, the bulk of volumes have ended up in Europe, rising from about 0.81 Bcfd in March to 1.17 Bcfd in May 2022. Freeport LNG was able to be flexible with diverting volumes to Europe since on average around 76% of its exported volumes in 2022 are uncontracted. As a result, we expect Europe will be the region most impacted by this incident.

Freeport LNG exports to Europe account for about 10% of total import volumes into Europe. The region relies heavily on US export volumes which have accounted for approximately 45% of imports since the start of the year. Russia and Qatar each account for about 15% of Europe’s import volumes with the remaining third coming from Nigeria, Algeria, Southern America and the Caribbean. Since the Russian invasion, uncontracted volumes from Freeport have found their way to European markets, reducing its exposure to the Asian market. Recently, Freeport to Europe has been a popular route for vessels such as Corcovado LNG, Yiannis, Maran Gas Andros, Prism Courage and Prism Brilliance that are chartered by JERA, Osaka Gas and SK E&S and are typically used to supply volumes to the Asian market.

While Freeport LNG is offline, it is unclear which alternative volumes could replace the drop in exports to Europe. However, with favorable spot prices, we believe that countries such as Nigeria and Algeria which are producing well below nameplate capacity could increase production to help fill the void. Additionally, US uncontracted spot volumes from larger exporting facilities including Sabine Pass, Corpus Christi, and Cameron LNG could divert supply to Europe. 

The global gas market was already tight heading into the northern hemisphere’s summer demand period, but Freeport LNG’s outage is expected to further tighten the market. This is implied in upward movement of Europe’s Title Transfer Facility (TTF) which gained $1.50 per million British thermal units (MMBtu) to settle at $26/MMBtu on 8 June 2022. The milder winter and diverted cargoes due to Russia’s invasion of Ukraine have meant that Europe has been filling inventories at a faster pace than last year. According to Rystad Energy analysis, current inventory levels are approximately 1.998 trillion cubic feet (Tcf) as of 10 June, which is 327 Bcf higher than the same period in 2021. If the facility remains offline for a protracted period of time, we expect TTF prices to stay elevated until replacement volumes have been found.

So far, the balances are pointing towards a winter deficit as supply has persistently lagged expectation, up a modest 4 Bcfd on a year-over-year basis. Demand has seen significant upside and is higher by approximately 9 Bcfd on a year-year basis. We expect Freeport’s outage to positively impact the domestic gas balances here in the US and narrow the potential winter deficit.

With Freeport expected to be offline for the next three weeks, we can expect an uptick in US storage injections relative to expectations. This was implied when US Henry Hub (HH) prices fell 6% to $8.70/ MMBtu from a 14-year high of $9.70/MMBtu after the news of the fire. The drop in LNG exports will help offset some of the expected uptick in US demand as a result of the warmer weather which is expected in the coming weeks. On 9 June 2022, the US Energy Information Administration (EIA) reported a storage build of 97 Bcf for the week ending 3 June 2022. The largest injections coming from the US eastern and south-central regions, recording net builds of 30 Bcf and 26 Bcf, respectively. We expect US gas balance dynamics will change in the next few weeks with the Freeport facility offline. Stronger injections could move storage projections higher and temper Henry Hub prices in the interim.

Join us this Tuesday, June 21, for a special live and interactive webinar session:   

ASK US ANYTHING: LNG MARKETS & SUMMER OUTLOOK

Our senior LNG analyst team led by Xi Nan, Sindre Knutsson and Kaushal Ramesh together with Isaac Robertson, VP of Business Development - Markets, will examine what has been an incredible six months for the LNG market, providing insights and answering questions on:

• LNG demand: east or west?
• Supply disruptions

We look forward to welcoming you to this session and answering your questions. Register now.