On the morning of June 8, an incident occurred at the Freeport LNG terminal that required the facility to shut down. Later that day, Freeport indicated that it would be down for at least three weeks, but then just yesterday announced a shutdown that is to last at least ninety days and maybe until the end of 2022.
Why does it matter?
The impact of the shutdown was immediate as natural gas prices here in the U.S. fell and LNG prices in Europe rose. It even impacted electricity prices as the Freeport terminal uses electricity rather than gas for its liquefaction process.
What’s our view?
Based on video from the scene, the incident appears to have involved leaks in two different areas of the facility’s system, although Freeport’s press release refers to only one. In addition, Freeport announced that it had just begun its investigation into the cause of the incident, but that “preliminary observations suggest that the incident resulted from the overpressure and rupture of a segment of an LNG transfer line, leading to the rapid flashing of LNG and the release and ignition of the natural gas vapor cloud.” Because of the joint responsibility that FERC and PHMSA have for the safe operation of LNG terminals, we expect both agencies to be involved in the decision to allow a restart of the facility. The ninety-day estimate is certainly more reasonable for a return to service than the original three-week estimate. In the meantime, the companies that hold firm interstate pipeline capacity of approximately 1.8 bcf/day will likely need to redirect the gas intended for export to another use.