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Risk of Gas Supply Shortage

by Eric Sinitski

 

Freeport, Texas – On Wednesday June 8, 2022 at 11:40 AM the Freeport liquified natural gas (LNG) facility experienced an explosion taking production off-line for a reported minimum of three weeks that expects to extend into July; no injuries were reported. The facility is a liquefication terminal which cools natural gas to -162 °C to be shipped overseas for consumption across the world. Freeport produces 2 Bcf/Day or roughly 16% of the United States daily export capacity.

With a shifting geopolitical landscape, the U.S. is at the center of a boom in demand for liquified natural gas including several commitments for increased international delivery made in the last sixty days. The terminal shutdown threatens the United States’ ability in the short term to support Asian and European gas demands as Europe looks to fulfill gas demand from other producers besides Russia.

Domestically markets reacted quickly. The price for prompt month Henry Hub, NYMEX gas, the measuring standard for the price of Natural Gas in the United States, fell by $0.594 (-6.4%) to $8.699 in Wednesday’s trading. The selloff continued Thursday morning before reversing course and turning positive midday.

Additionally, the weekly storage report published today at levels -14.5% lower than the five-year average. With the reduced ability to export LNG the U.S. may have a favorable opportunity to close the gas storage deficit through June as more gas supply is kept stateside.

 

 

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