Texas LNG plant blast to hit energy supply

Global markets could be affected with supplies already stretched thin

An explosion at a major natural gas production facility in Texas could knock the plant offline for at least three weeks, company officials said Thursday, hitting global energy markets when supplies are already stretched thin.

The cause of the Wednesday blast at the Freeport LNG facility in Quintana is not clear, the company said. There were no injuries and all employees have been accounted for, spokeswomen 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 demand has been volatile for months because of inflation and Russia’s invasion of Ukraine, pushing U.S. production and exports into overdrive.

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

“The world was already teetering on the edge, so to speak, for global LNG supply-demand and the incident at Freeport … pushes the world … ‘a bit closer (to the edge),’” said Alex Munton, director of global gas and LNG at Rapidan Energy Group.

“There’s a lot of pressures operating on the gas prices in (Europe) right now, the biggest of which is the … war in Ukraine, and Russian gas diplomacy and gas pressure on Brussels and in the continent,” said Kevin Book, managing director of ClearView Energy Partners, an independent research group. “This has affected the prices downstream, as well.”

Futures on Dutch TTF gas, the international natural gas benchmark, jumped on the news, moving 8.8% higher early Thursday afternoon, at 84.88 euros per megawatt/hour. They had traded as high as 92.05 euros per MWh earlier in the day.

The United States is the world’s largest natural gas exporter, with much of domestic production headed to Britain and the European Union, where gas heats homes and businesses, and powers large-scale industrial facilities.

Europe is facing an energy supply crunch as it tries to wean itself off Russian fossil fuel. The euro zone recently announced plans to halt the import of Russian crude oil by the end of 2022. Russia separately supplies nearly 40% of the bloc’s natural gas.

LNG also has been traded traditionally on long-term contracts, but European officials some years ago opted instead for spot trading, hoping the flexibility would mean lower prices.

The move aligned the European market with U.S. production and sales practices, Munton said. Tankers departing such facilities as Freeport — which alone accounts for 20% of domestic LNG processing — transport as much as 64 billion cubic feet of gas per month.

Those shipments are more suitable for short-term trades, rather than gas flowing through pipelines.

The model is “working pretty well, but, of course, the elephant in the room is: What happens if things fall apart with respect to Russia?” Munton said.

And experts warn demand could get tighter. Asia, particularly China, which is also heavily reliant on LNG, has seen depressed demand in 2022 due to slowing economic growth. But, in late-May, Beijing announced new individual and corporate economic stimulus measures to boost GDP shortly after lifting draconian pandemic restrictions.

The result, Munton said, could be rising demand worldwide as supply contracts. American energy producers are already bracing for a hot summer and possibly an “above-normal” Atlantic hurricane season. “Risks are concentrated in the Gulf of Mexico by geography. Energy infrastructure is exposed,” Book said.