A fire at Freeport LNG’s natural gas liquefaction plant led to the full shutdown of the facility on June 8.
In an analysis by the Energy Information Administration (EIA), the shutdown cut U.S. export capacity by around 2.0 billion cubic feet per day (Bcf/d). As a result, the U.S. benchmark Henry Hub natural gas spot price fell by $1.27 per million British thermal units (MMBtu) to $8.16/MMBtu on June 9. The Henry Hub price fell through the end of June, ending the month at $6.54/MMBtu.
Texas-based IFO Group LLC is preparing a draft report on the export facility’s accident. The report is slated to be released to federal regulators later in July. Freeport LNG plans at least a partial restart in October.
News reports said that contractors performing maintenance work on a storage tank reported hearing unusual sounds the morning of the blast. Plant officials responded by conducting an inspection, but didn’t observe any anomalies. The sounds were reported days after an investigation into a nearby “pipe movement.”
Reports said the explosion happened along a 700-foot section of pipe where LNG had become trapped, causing pressure to build. The rupture released a cloud of gas that ignited. The fireball lasted for 5 to 7 seconds, and the fire burned for 30 minutes.
Contractors with the firm Puffer-Sweiven were reported to have performed routine tests in April on a pressure safety valve that’s part of the same system of pipes that subsequently failed. The equipment passed inspection, but Freeport LNG is looking into whether a related valve was left closed after the tests.
No injuries were reported from the explosion. The company estimated that 1.6 million cubic feet of natural gas was burned during the fire. Prior to the accident, Freeport handled around 20% of U.S. LNG exports. Those exports have grown in importance after Russia’s invasion of Ukraine in February disrupted natural gas shipments to many European countries.
EIA said that prices fell largely because the outage cut U.S. natural gas exports, putting downward pressure on natural gas prices. The agency’s Short-Term Energy Outlook (STEO) for July estimated that U.S. liquefied natural gas (LNG) exports averaged 10.1 Bcf/d in June. That was down by 1.5 Bcf/d from May, a result of the outage. EIA said it expects LNG exports to remain below average, at 10.5 Bcf/d in the second half of 2022, some 1.8 Bcf/d lower than in its June outlook.
In addition, EIA said that it expects the Henry Hub natural gas spot price to continue to decline from its June average of $7.70/MMBtu to an average of $5.97/MMBtu in the second half of the year. The drop is mainly due to lower exports which will contribute to a lower overall natural gas demand outlook.
With the lower prices, EIA is forecasting natural gas consumption in the industrial sector and electric power sector to rise, offsetting some of the total demand drop. Total demand (which is equal to consumption plus exports) is forecast to be down by 0.7 Bcf/d in 2H22.
By next 2023, U.S. natural gas production is expected to grow and inventories build back to their five-year average levels, putting additional downward pressure on prices. The July outlook forecasts the 2023 Henry Hub spot price will average $4.76/MMBtu.
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