Freeport LNG outage to escalate global market crunch, says panel

Freeport LNG's 90-day outage will mean global gas markets tightening still further over the rest of the year, exacerbating pricing pressures that have resulted from the war in Ukraine and, more recently, Gazprom cutting gas exports through major pipeline routes to western Europe, according to Kristen Holmquist, head of data analytics at Poten & Partners.

Holmquist made the remarks at a virtual webinar hosted by Poten & Partners, where she spoke alongside colleagues Piers de Wilde, senior analyst for European LNG business intelligence, and Kit Ling Wong, head of Asia Pacific business intelligence. The discussion was chaired by Poten's Jason Feer, who leads on business intelligence globally.

"This is going to have a large effect on the market, and the market is already tight," Holmquist said. "There might be a few incremental tons from [other US LNG projects], but not enough to make enough for the lost volume from Freeport.  And with Russia starting to throttle deliveries by Nord Stream 1, it just has the potential to make this market that has been so tight even tighter."

"One of the surprising things throughout the years I think is just how high US production has been. It has been around 7mn metric tons/month, which is higher than anyone expected. The Freeport LNG loss is around 1mn mt/month, so with the stated 90 days that is 3mn mt - that's a lot in this market when it is so tight already."

Ling Wong said the market was already witnessing the impact of Freeport LNG loss, as several Asian gas buyers emerge to buy more gas for short-term cover. She added "There has been a lot of prompt demand especially from some of the buyers that have been affected [by Freeport]. And we have seen some deals that have been done at a relatively high price of around JKM plus ¢30. 

"Previously I don't think we have seen such a steep premium [even with tight energy markets], so this is really a result of the Freeport LNG loss. The question is do these steep premiums continue into winter. Given the effect of the uncertainty of when Freeport LNG is going to start, I think it is fair to say such premiums will continue into winter."

Another surge in gas premiums is bad news for European gas buyers as the continent scrambles to bring new floating LNG capacity online, to reduce Russian gas dependency. Floating terminals in the Netherlands, Germany and Finland could be ready to bring in volumes before the end of this year, but their backers might find fierce competition for LNG cargoes as tighter capacity leads to a bidding war with Latin America - where Brazil and Bolivia are stepping up purchases - and in Asia, where much will depend on whether China enters the market for spot LNG cargoes ahead of its winter heating season.

Piers de Wilde said China seems better served by long-term gas contracts, partly due to depressed industrial demand. This could save European LNG contract vessels operators from swallowing a bitter pill, if spot prices drifted out of their comfort zone.

De Wilde added: "But if China does need the gas, then those FSRUs in the Netherlands, Germany and Finland might become stranded assets. It is not an easy win yet, but if Europe can bid well for the volume then that might swing markets in its favour. Right now the market heading out to winter is at a discount to TTF, but it could swing quicker than you think, it just depends on Asia.

"With the Nord Stream production curtailments it has been one thing after another for the European market - it is incredibly edgy out there at the moment. You have TTF flying over $40/mn Btu,  and it has pulled the curve all out of line for this time of year.

"Already there was so such risk in trading, and these outages just increase the risk because Europe is even more reliant on energy. It used to be a bit of a price maker, now it is a price taker."