Explosion at key gas export plant in the US rocks global energy markets

Freeport LNG, operator of one of the largest US export plants producing liquefied natural gas (LNG), will shut for at least three weeks following an explosion at its Texas Gulf Coast facility.

The fire rocked US natural gas markets on Wednesday and the impact is likely to spread through Europe and Asia markets, analysts said.

Freeport LNG, which provides around 20% of US LNG processing, disclosed the shutdown late on Wednesday after appraising damage to the massive facility.

Its closure takes away a major supplier to markets already strained by European buyers shunning Russian LNG over its invasion of Ukraine – actions that Moscow calls a “special operation” – and by resurgent demand in China, analysts said.

“This is a significant production outage at a major US facility,” said Alex Munton, director of global gas and LNG at research firm Rapidan Energy. Freeport LNG ships about four cargoes per week and a three-week shutdown will take at least one million tonnes of LNG off the market, he said.

It’s going to mean one thing: shortages

Alex Munton, director of global gas and LNG at research firm Rapidan Energy

“It’s going to mean one thing: shortages. The competition for spot LNG is going to drive global LNG prices higher,” Munton said.

The plant can process up to 2.1 billion cubic feet of natural gas per day (bcfd), and at full capacity can export 15 million tonnes per annum (MTPA) of the liquid gas. US LNG exports hit a record 9.7 bcfd last year, according to the US Energy Information Administration (EIA).

In March, 21 cargoes loaded at the Freeport facility, carrying an estimated 64 billion cubic feet of gas to destinations in Europe, South Korea and China, according to the US Department of Energy. That’s up from 15 cargoes in February and 19 in January.

US natural gas futures sank following news of the explosion on concerns it could disrupt the plant’s demand for gas. They closed down about 6% at $8.699 per million British thermal units (mmBtu), having hit a near 14-year high of $9.664 mmBtu earlier in the day.

Freeport LNG was founded in 2002 by billionaire Michael Smith, and processes gas for companies including BP, JERA, Kansai Electric, Osaka Gas, SK E&S and TotalEnergies. It is in the midst of expanding the plant’s capacity to 20 MTPA.

An investigation into what prompted the explosion was underway, a spokesperson for the company said, without elaborating on the cause of the fire.

A representative for the US Coast Guard on Wednesday said a security zone had been set up two miles east and west of Freeport LNG’s facility, closing that portion of the intracoastal waterway to vessel traffic.