U.S. natural gas futures swooned 18% Tuesday — and LNG stocks rebounded — as Freeport LNG announced it doesn’t expect its export terminal to recover full capacity until late 2022. The privately held company had previously estimated that its export terminal in Quintana, Texas, one of the largest in the country, would be offline for around three weeks after last week’s fire.
Freeport LNG said Tuesday that repairs to make the plant fully operational will not be completed until late 2022. However, the company is targeting the plant to be partially operating in 90 days.
U.S. LNG tested the $7 per million British thermal units mark for the first time since early May on Tuesday morning. European gas prices soared. Rising benchmark futures in Amsterdam jumped 21% after Russia’s Gazprom announced supply from the Nord Stream pipeline will be limited by 40%, according to Bloomberg.
The Freeport LNG incident has caused concerns that domestic LNG supplies could be stuck onshore despite soaring international demand.
Last Wednesday a fire knocked the Freeport LNG liquefied natural-gas export plant offline, pressuring LNG markets already battling a supply crunch. The outage forced a divergence in U.S. and European LNG prices, with Europe’s energy markets already tightly constrained due to the international response to the war in Ukraine.
After hitting a 14-year high on June 6, natural gas futures prices dived nearly 14% last week before recovering after Energy Information Administration data showed gas inventories about 15% below their five-year average.
A One-Million-Ton Loss
Demand for LNG has soared, along with LNG stocks, over the past year, just as a slug of new capacity lifts the U.S. to compete with Australia and Qatar for the title of the world’s largest LNG exporter. On the demand side, even before Russia’s invasion of Ukraine, European electricity prices had skyrocketed late last year. With natural gas supplies from Russia now largely off the table in Europe, electricity prices are expected to go even higher. In 2021, Russia provided nearly half the European Union’s gas imports.
The Freeport LNG plant can produce around 2 billion cubic feet per day (bcf/d) of LNG. That comprises more than 15% of U.S. LNG export capacity. U.S. LNG total peak export capacity in 2021 was about 12.98 bcf/d, according to the EIA. The United States is the world’s top natural gas producer.
Before the explosion and fire, export trackers were reporting that the terminal was operating near peak capacity. Tom Marzec-Manser, a gas analyst for ICIS, said in a tweet that 68% of all Freeport LNG exports in the last three months have gone to the European Union and the United Kingdom.
“If the plant is only offline for 3 weeks, that’s almost 1 (million tons) of production gone from the Atlantic,” he wrote.
So far in 2022, 75% of total U.S. LNG cargoes have gone to Europe, compared with 34% in 2021, according to federal data. The loss of export capacity suggests that, until Freeport LNG’s output is back online, there will be less LNG to move out of the U.S.
LNG Stocks To Watch
On May 4, Houston-based Cheniere Energy, an IBD Leaderboard stock, raised full-year 2022 EBITDA and cash flow guidance, after crushing Q1 revenue views. LNG cited increased volumes and higher LNG margins in part.
The relative strength line for both GLNG stock and Cheniere Energy bolted to multiyear highs in March after the Ukraine war. Flex LNG aced a record high and Golar touched a multiyear high early in June.
Both LNG stocks have pulled back sharply following breakouts, falling more than 8% below their buy points and triggering the automatic sell rule.
Oil and gas stocks have steadily outperformed this year’s stock market. Industry giants Exxon Mobil (XOM), Chevron (CVX) and Shell (SHEL) — all significant players in the LNG field — can be found on IBD’s proprietary watchlists, including the IBD 50 and the IBD Big Cap 20.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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