Oh, great– another addition to the energy crisis.
One of the world’s largest natural gas liquefaction plants suffered an explosion on Wednesday.
The cause of the blast is not known, but the Freeport LNG plant on Quintana Island — about 70 miles south of Houston — will be out of service for at least three weeks, the Houston Chronicle reported.
That’s especially bad news for Britain and other areas of Europe since the plant is a major exporter to those regions and they’re especially dependent as they struggle to get themselves off Russian oil following the invasion of Ukraine, according to The Washington Post.
Europe also gets 40 percent of its natural gas from Russia, with the U.S. being the world’s largest exporter of the commodity.
KHOU said there were reports of rolling thunder stemming from the explosion, with smoke seen billowing up from the facility. There were no injuries, according to a company spokeswoman.
As a precaution, authorities evacuated people near the plant. Later, only local residents could return, with the area closed to visitors.
A long suspension of the LNG facility’s production could affect world energy prices, especially with the usual summer demand increases.
“The world was already teetering on the edge, so to speak, for global LNG supply-demand,” Alex Munton of Rapidan Energy Group said, according to the Post. “And the incident at Freeport — I wouldn’t say it pushes the world over the edge — but I think [it’s] a bit closer.”
The Ukraine war and problems in dealing with Russia have put pressure on European gas prices, according to Kevin Book of the ClearView Energy Partners research firm.
Shortly after the explosion, Dutch gas futures jumped nearly 9 percent.
Scandanavia and North Africa also supply Europe with natural gas, but production problems plague the ability of those areas to meet demand, the Post reported.
Previously, Europe used long-term contracts for gas purchases, but, hoping to secure lower prices, it switched to buying on the spot market, aligning it with U.S. practices, Munton said.
LNG is more amenable to spot market sales compared with long-term contract sales made through pipelines, which tend to be dedicated to specific customers.
That works well, according to Munton. However, he said, “The elephant in the room is: What happens if things fall apart with respect to Russia?”
Pandemic lockdowns have suppressed Chinese demand for LNG, but that’s changing as the Chinese are working to increase domestic production and Munton predicts a possible increase in LNG demand with reduced supply.
High demand, low supply? Higher prices, of course.
Also, 2022 has been given a greater than normal risk for hurricanes. And where is the Freeport facility that provides 20 percent of U.S. domestic LNG and loads some 64 billion cubic feet on export tankers each month?
In hurricane country.
“There are always going to be risks when you have a hurricane-prone area that happens to be the site of most industrial activity for a given sector,” Book said. “Risks are concentrated in the Gulf of Mexico by geography. Energy infrastructure is exposed.”
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