Market reacts to Freeport LNG’s prolonged restart, latest Rystad Energy market update shows

Freeport LNG remains under the spotlight of the global market, after the US liquefaction plant halted operations before Hurricane Beryl’s arrival along the US Gulf Coast a week earlier, according to Rystad Energy's gas and LNG market update

The facility’s longer-than-expected closure has restoked some concern over global liquefied natural gas (LNG) supply risk, despite the remaining US liquefaction capacities being largely unaffected by the hurricane.

The Title Transfer Facility (TTF) price in Europe rose 4.67% week on week from €31.335 ( US $34.26) per megawatt-hour (MWh) to €32.797 per MWh on 16 July. In the same period, Asia spot LNG price trended higher by 6.3% from $11.57 per million British thermal units (MMBtu) to $12.3 per MMBtu, Wei Xiong, VP - Gas and LNG Market Research at Rystad Energy, said.

This is also driven by hot temperatures in Southern Europe and increased purchases by Asian countries over the past week to meet summer cooling demand. Meanwhile, reduced gas flows to LNG export terminals, high gas storage and increased dry gas production dragged down the Henry Hub price by 6.66% week on week from $2.344 per MMBtu to $2.188 per MMBtu on 16 July.

US: Freeport’s status adds to bearish sentiment

Fundamentals in the US market were largely unchanged over the past week, dominated by price downsides, including Freeport LNG’s closure and ample supplies. Freeport went offline on 7 July before Hurricane Beryl made landfall in Texas.

Some equipment of the facility was damaged by the hurricane and is being repaired, according to an announcement by Freeport LNG. The terminal plans to resume operations of one of its three trains this week, with a capacity of 5.1 million tonnes per annum (Mtpa).

There is, however, uncertainty about the timeline of the resumption of another two trains. Feedgas flows to the terminal remained at minimal levels of only 8.7 million cubic feet per day (Mcfd) on 14 July, compared to nearly 2 billion cubic feet per day (Bcfd) on 6 July before the hurricane’s arrival, indicating the facility was still offline last weekend.

Four vessels are currently waiting outside Freeport LNG, data from Rystad Energy LNG Vessel Tracker indicates. The terminal has seen extensive outages in recent years, including a near 10-month shutdown from mid-2022 to the first quarter of 2023 due to an explosion, while there have also been noticeable outages this year.

Nearly 9 million tonnes (Mt), 2.9 Mt, and 3.2 Mt of production losses occurred in 2022, 2023 and 2024 year to date, respectively, due to Freeport LNG’s downtime. Given its record of impacts, the prolonged restart this time and uncertainty about its full resumption have raised fresh concerns over US LNG supply risk, Xiong added.

US gas storage speeded up injections, up 65 billion cubic feet (Bcf) week on week to 3,199 Bcf for the week ending 5 July. This is 19% higher than the five-year average and 10% higher than the same period of last year.

In the meantime, US Lower 48 daily dry gas production has averaged 102.2 Bcfd in July month to date, at a similar level to June, which registered 102.3 Bcfd, compared to 101.3 Bcfd in May. These downsides have largely offset the limited upside from heatwaves, also seen in Europe and North Asia, which lifted gas-for-power demand in the US.

Gas consumption in the power sector spiked to a record high of 54.52 Bcfd on 9 July. Higher-than-normal temperatures in the Pacific region are expected to last until late July. Summer weather is the main factor to watch out for in the coming weeks, in addition to the restart timeline of Freeport LNG, Xiong explained.

Europe prices rebound on supply risk and heatwaves in southern Europe

Supply risk surrounding Freeport LNG has driven European gas prices to rebound from a near two-month low, as the US liquefaction plant has been one of the main sources of Europe’s LNG flows.Nearly 5.4% of Europe’s LNG imports in 2023, equivalent to 6.35 Mt, came from Freeport LNG. Data for the year to date shows 2.58 Mt of LNG flows from Freeport LNG to Europe, accounting for 4.6% of Europe’s LNG imports in the same period.

Another upside comes from heatwaves in Southern Europe. Many Italian cities have issued emergency heat alerts, as temperatures could rise above 40 degrees Celsius.

Above-normal temperatures in Italy and Greece are expected to last until early August. Italy’s abundance in gas storage is likely able to meet spiking gas for power demand – its underground storage was 85.1% full as of 15 July, compared to Europe’s average level of 81.1%, according to Xiong. Given overall brimming supplies in Europe, the bullish factors may not be able to lend lasting support on prices.

Norwegian flows have maintained at steadily high levels, up 1.62% week on week from 333.89 million cubic meters per day (MMcmd) on 7 July to 339.3 MMcmd on 14 July – 30% higher the year-earlier level. Russian flows increased 1.12% week on week to 93.63 MMcmd on 14 July but dropped 4.9% year on year.

Increased buying from Asia

Asian buyers have become more active over the past week. This includes Japanese companies such as Jera, Tohoku Electricity and Kansai Electricity, and Indian buyers such as Gail, Indian Oil Corporation and Gujarat State Petroleum.

Most of these companies have been seeking cargoes for August-September deliveries to meet summer demand. The LNG inventory among Japan’s power utilities rebounded 10.6% week on week from 1.99 Mt to 2.20 Mt on 14 July, while last week saw a 5.2% drop. This partly alleviates the concern about inventory withdrawal, although temperatures are expected to remain higher than normal until early August.

South Korea’s Hanbit nuclear unit 6, with a capacity of 1 gigawatt, started planned maintenance from 11 July and is expected to resume around early October. This has yet to result in more buying from South Korean companies, given the country’s high LNG inventory, Xiong stated. Likewise, not much spot buying from China has been seen.

Higher spot LNG prices have led to shrinking price competitiveness compared to the LNG contract price and piped gas imports. Unless there is a major retreat in spot prices, China is likely to stick to contractual volumes this year.