Explosion at Texas LNG plant puts further pressure on global energy market

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An explosion at a major natural gas production facility in Texas could put the plant out of service for at least three weeks, company officials said Thursday, rattling global energy markets at a time when supplies are already sold out.

The cause of Wednesday’s explosion at the Freeport LNG facility in Quintana is unclear, the company said. There were no injuries and all employees were found, spokeswoman Heather Browne told The Washington Post.

The natural gas liquefaction plant is one of the largest in the world and is a major exporter to Britain and other parts of Europe. Energy markets have been volatile for months due to inflation and Russia’s invasion of Ukraine, pushing US production and exports to excess.

A prolonged shutdown of the Freeport facility could have a significant effect on energy prices, experts warn, especially as markets brace for a surge in summer demand.

“The world was already on the brink, so to speak, for global LNG supply and demand, and the Freeport incident, I wouldn’t say it’s pushing the world to the brink, but I think a little closer,” Alex said. Munton, global director of gas and liquefied natural gas (LNG) at Rapidan Energy Group.

“There is a lot of pressure on gas prices in [Europe] at the moment, the most important of which are the risks and deficiencies created by the war in Ukraine and Russian gas diplomacy and the pressure of gas on Brussels and on the continent,” said Kevin Book, Managing Director of ClearView Energy Partners, an independent research group. “It affected prices downstream as well.”

Dutch gas futures TTF, the international benchmark for natural gas, jumped on the news, rising 8.8% in early Thursday afternoon to 84.88 euros ($90.23) per megawatt hour. . They were trading as high as 92.05 euros ($97.87) per MWh earlier today.

The United States is the world’s largest exporter of natural gas, just ahead of Australia and Qatar, with much of the domestic production destined for Britain and the European Union. Gas is used there to heat homes and businesses and to power large industrial facilities.

Europe is facing an energy supply crisis as it attempts to wean itself off Russian fossil fuels due to the invasion of Ukraine. The eurozone recently announced its intention to stop importing Russian crude oil by the end of 2022. Russia separately supplies nearly 40% of the bloc’s natural gas.

Europe also buys natural gas from Scandinavia and North Africa, but those regions are struggling to scale up production and processing, experts say. LNG has also traditionally been traded on long-term contracts, but European officials opted for spot trading a few years ago, hoping the flexibility would offer cheaper prices.

The move brought the European market in line with American production and sales practices, Munton said. Tankers from facilities like Freeport – which alone account for 20% of national LNG processing – transport up to 64 billion cubic feet of gas per month.

These shipments are more suitable for short-term trading, rather than gas flowing through pipelines, which is more difficult to divert to new customers.

The model “works pretty well, but of course the elephant in the room is: what if things fall apart as far as Russia is concerned?” said Munton.

And the demand picture, experts warn, could tighten. Asia, and particularly China, which is also heavily dependent on liquefied natural gas, saw depressed demand in 2022 due to slowing economic growth.

But Beijing announced dozens of new economic stimulus measures for individuals and businesses in late May to boost gross domestic product. shortly after draconian pandemic restrictions were lifted.

The result, Munton said, could be increased demand worldwide as supply contracts. U.S. energy producers are already preparing for a hot Southeast summer and a turbulent hurricane season. Power grid outages in parts of Texas and Louisiana in recent years have disadvantaged growers in the past, and federal environment officials have predicted an “above normal” Atlantic hurricane season.

“There are always going to be risks when you have a hurricane-prone area that happens to be the site of most industrial activity for a given sector,” Book said. “Risks are concentrated in the Gulf of Mexico by geography. Energy infrastructure is exposed.

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