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U.S. natural gas prices nosedived Tuesday afternoon after Freeport LNG Development LP outlined plans to restart partial operations at its export terminal on the Upper Texas Coast later than expected in November. The company had previously guided for a restart in early October.
Initial production is now expected to begin in early to mid-November and ramp up to a “sustained level” of 2 Bcf/d by the end of the month. That would represent about 85% of the facility’s capacity, or enough to meet its existing long-term contracts.
The company does not anticipate the facility’s full 2.38 Bcf/d service returning until next March, when a second loading dock returns to service. It had aimed for full operations to restart by the end of the year. It said “typical construction risks could impact the recovery plan,” which it said was aimed at reducing the risk of further delays.
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The cause of the incident remains under investigation, but the plant was knocked offline in June by an explosion and fire in a stretch of piping near its storage tanks.
NatGasWeather analysts in a note to clients Tuesday said the announcement “clearly rocked” the U.S. gas market. The firm noted that Henry Hub prices plummeted by 50 cents within minutes of the news, halting a rally toward $10/MMBtu that started Monday on concerns about adequate European supplies heading into the winter.
The September contract finished at $9.19 Monday, down 83 cents from an intraday high of $10.02 and 5% below Monday’s finish. Prices tumbled as the jolt in demand that Freeport is likely to provide when it returns to service is now expected to come later. Analytix.AI estimated that roughly 106 Bcf would be back in storage inventories, compared to the old timeline for the October restart.
Freeport said earlier this month it had reached a consent agreement with federal regulators to keep the facility on track to come back to full service by the end of the year. The company expects to return three liquefaction trains, two storage tanks and one of two loading docks to operations. The second loading dock is planned to be used as a lay berth until loading capabilities are reinstated in March 2023.
The announcement is also likely to put further pressure on global gas prices, particularly in Europe, where the Title Transfer Facility surged to a record of more than $80/MMBtu Monday. Prices declined slightly on Tuesday, but Russia plans to take Nord Stream 1 offline for three days of maintenance next week, casting doubts about whether the system will enter service after the work is finished. NS1 is one of the largest conduits serving Europe.
Supply concerns, hotter-than-normal weather and a power crisis have driven European gas prices higher in recent weeks. Freeport had been supplying global buyers with about five liquefied natural gas cargoes each week before the June explosion.
Kiewit Energy Group Inc. has been selected to perform the engineering, procurement and reconstruction activities to restart the complex.
Federal regulators said in June that preliminary evidence showed high pressures in 300 feet of vacuum insulated piping caused the incident. Regulators said the pipeline is part of the LNG transfer system and was used to transfer LNG throughout the storage tank area. Other pipelines in those areas were also damaged and will require repairs or replacement before LNG transfer operations may resume.
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Related topics: Europe Freeport Lng Prices Rally Restart
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