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European natural gas buyers are facing a setback in their bid to break up with Russian energy gradually now that Freeport LNG’s Texas terminal will remain inoperative for the next several weeks.
Freeport’s Gulf Coast facility, which can process about 2 billion cubic feet of natural gas per day, suffered an explosion and fire on June 8 and will be offline for at least three weeks, the company said. The disruption takes large volumes of LNG off the market at a time when European customers are gobbling up gas to help displace demand for Russian supplies and to fill storage ahead of winter.
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The incident “spells trouble” for Europe in particular, global market analytics firm Rystad Energy said in a market note on Monday, because the continent has been importing an increasing share of Freeport’s shipments since the war in Ukraine began.
Rystad estimates the company’s Europe-bound volumes to have risen from about 0.81 billion cubic feet per day in March to 1.17 billion cubic feet per day in May.
“Freeport LNG has been flexible and quick to divert volumes to Europe since on average around 76% of its exported volumes in 2022 are uncontracted, as a result, we expect Europe will be the region most impacted by this incident,” analyst Zongqiang Luo said in the note.
Since the war in Ukraine, European governments and energy companies have been looking to the United States and other major gas exporters, including Qatar, to supply them with more gas as they try to cut their dependence on Russia.
The U.S. has stepped up, exporting 74% of its LNG to Europe through April, as compared with 2021’s annual average of 34%, according to Energy Information Administration data.
Freeport’s facility, which is one of seven LNG terminals operative in the U.S., is behind a sizable share of Europe’s imports, accounting for about 10% of total import volumes.
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President Joe Biden backs more exports and, along with European Commission President Ursula von der Leyen, established a joint U.S.-EU Task Force for Energy Security in March.
The task force is aiming to ensure 50 billion cubic meters of additional exports of U.S. LNG to Europe beginning next year through at least 2030.
