A fire on Wednesday knocked out one of the largest liquefied natural gas export plants in the United States for at least three weeks, putting pressure on LNG markets already struggling with a supply shortage. The outage led to a divergence in LNG prices in the United States and Europe, with European energy markets already severely constrained due to the international response to the war in Ukraine.
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After hitting a 14-year high on Monday, natural gas futures fell 6.4% to 8.69 million British thermal units on Wednesday. LNG prices in the United States also fell as the incident at Freeport LNG’s private export terminal in Quintana, Texas left much of potential LNG exports to the United States with nowhere to go. go.
LNG-related stocks generally traded lower on Thursday. Meanwhile, gas prices in Europe have skyrocketed. The rise in benchmark futures in Amsterdam caused a six-day decline, according to Bloomberg. UK gas prices soared 39%.
Natural gas futures rallied later on Thursday, trading around 8.5 million British thermal units, after the US Energy Information Administration (EIA) released storage data .
The EIA reported that natural gas storage last week was estimated at 1.999 billion cubic feet. This is a net increase of 97 billion cubic feet from the previous week, in line with expectations. However, U.S. natural gas storage is down 16.6% from a year ago and 14.5% below the five-year average of 2.339 billion cubic feet, according to federal estimates. .
A loss of a million tons
Demand for LNG has soared over the past year, just as a flurry of new capacity is allowing the United States to compete with Australia and Qatar for the title of the world’s top LNG exporter. On the demand side, even before Russia’s invasion of Ukraine, electricity prices in Europe had skyrocketed late last year. With natural gas supplies from Russia now largely irrelevant in Europe, electricity prices are expected to rise further. In 2021, Russia supplied nearly half of the European Union’s gas imports.
The Freeport LNG plant can produce approximately 2 billion cubic feet per day (bcf/d) of LNG. This provides over 15% of US LNG export capacity. Total U.S. LNG export capacity in 2021 was about 12.98 billion cubic feet/d, according to the EIA. The United States is the world’s largest producer of natural gas.
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Prior to Wednesday’s explosion and fire, export trackers were reporting that the terminal was producing around its upper limit. Tom Marzec-Manser, gas analyst for ICIS, tweeted on Thursday that 68% of all LNG exports from Freeport over the past three months went to the European Union and the United Kingdom.
“If the factory is only offline for 3 weeks, that’s almost 1 (million tons) of production that has disappeared from the Atlantic,” he wrote.
So far in 2022, 75% of total US LNG cargoes have gone to Europe, up from 34% in 2021, according to federal data.
LNG stocks to watch
LNG exporter Energy Cheniere (LNG) reversed early losses and rose 0.6% before falling back. LNG stock fell 3.36% to 137.41 as of Thursday’s close.
LNG carriers Golar LNG (LNG) and Flexible LNG (FLNG) were both down today stock market trading. FLNG was down 8.41% while GLNG was down 4.85%. The loss of export capacity suggests that until Freeport LNG production comes back online, there will be less LNG coming out of the United States.
On May 4, Houston-based Cheniere Energy, IBD Ranking Stock, raised its full-year 2022 EBITDA and cash flow guidance, after smashing first-quarter revenue forecasts. LNG cited in part increased volumes and higher LNG margins.
The relative force line for both GLNG Stock and Cheniere Energy hit multi-year highs in March following the war in Ukraine. Flex LNG hit a record high and Golar hit a multi-year high in early June.
Both stocks fell sharply after breakouts, falling more than 8% below their buy points and triggering the auto sale rule.
Oil and gas stocks have consistently outperformed the stock market this year. Industry giants Exxon Mobil (XOM), Chevron (CLC) and Shell (SHEL) — all major LNG players — are on IBD’s proprietary watchlists, including the INN 50 and the IBD Big Cap 20. All three stocks fell early Thursday.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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