CERAWEEK: US Freeport LNG begins project to lift output by 1.5 mil mt/year amid maintenance

US LNG exporter Freeport LNG has launched a project to boost output, in tandem with major maintenance following an unplanned outage at one of its three liquefaction trains early this year -- work that is expected to weigh on utilization until May before raising overall production by 10% soon after, CEO Michael Smith said in a March 19 interview.

The debottlenecking effort stands to increase the capacity of the three-train 15 million mt/year facility in Texas by 1.5 million mt/year, Smith said in the interview at CERAWeek by S&P Global in Houston. The additional production will bring Freeport's total uncontracted supply to about 3 million mt/year, which the exporter plans to sell on a spot basis.

"We are not interested in terming it out," Smith said. "We'll take the great prices when we can. We'll suffer the terrible prices when they happen. And the rest of the time, hopefully it will be somewhere in between."

The unit that was knocked offline in January, Train 3, is already back online and should resume full production the night of March 20 or early March 21 after Freeport successfully repaired a problem with an electrical moto(opens in a new tab)r experienced during a winter storm in January, Smith said. After inspecting the remaining two electrical motors on the liquefaction unit and making repairs, Freeport decided that it would shut down Trains 1 and 2 for inspection and similar work, if needed, moving forward planned maintenance that had been scheduled in the coming years.

Freeport took Train 2 offline about a week ago(opens in a new tab) for this purpose, Smith said. Train 1 will go offline soon. Production while the work is underway is expected to be the equivalent of about one liquefaction train. The maintenance work is more extensive than what the operator has previously announced.

"We will not be back up to three-train capacity until the beginning of May," Smith said.

Feedgas flows to Freeport were about 980 MMcf/d on March 19, up from about 760 MMcf/d during the previous seven days but still just around 40% of the maximum observed deliveries to the terminal.

The debottlenecking work by July should push the feedgas requirements of the facility when all three trains are running from about 2.2 Bcf/d closer to 2.5 Bcf/d, Smith said.

Additional supply

The optimization project, which Freeport had not previously publicly announced but planned last year, had been scheduled for a planned outage in May that will no longer be needed and would have dropped utilization of the terminal to one liquefaction train for about a month. The project entails adding compression to the pre-treatment facility about four miles away from the liquefaction facilities on Quintana Island, south of Houston.

The additional LNG production will be the equivalent of about a third of the nameplate capacity of one of Freeport's liquefaction trains "for well less than $100 million."

"It's incredibly important economically to us and it's significant to the marketplace," Smith said.

Freeport sees a healthy market for the additional supply, despite global LNG prices softening significantly after an unusually warm winter amid healthy stock levels and muted demand. The Platts Gulf Coast Marker for US FOB cargoes loading 30-60 days forward was assessed at $8.20/MMBtu March 19, compared to $10.4/MMBtu around the same time last year, on March 20, 2023, S&P Global dats showed.

The LNG market stands to remain "extremely tight" for at least 24 months, Smith said.

"Europe has still got a problem for another couple of years until there is a lot more LNG available, so margins will go back up to a very healthy level, and that's why we don't want to term out our excess," Smith said.

As Freeport brings the debottlenecking volumes on stream, it is continuing marketing volumes from a proposed fourth liquefaction train that would add 5.5 million mt/year of capacity. At this point, Freeport LNG has not announced any firm commercial deals tied to Train 4. A preliminary agreement signed in 2018 by Japan's Sumitomo for the purchase of 2.2 million mt/year of LNG expired without being finalized.

The Freeport founder and CEO described a "challenging market" for commercializing a liquefaction project due to rival developers "willing to take sub-normal, substandard rates of return" to keep their projects alive.

"Freeport doesn't need to do that," Smith said.

During the interview, Smith discussed how Freeport recovered from an eight-month shutdown that followed an explosion and fire at the facility on June 8, 2022.

2022 outage

The outage, ending in February 2023, amounted to the most significant ever for a US liquefaction facility. It also took some 16-19 cargoes that Freeport could otherwise export per month offline at a time when global LNG demand and prices were soaring following the loss of Russian pipeline gas to Europe.

Freeport's existing long-term offtakers include BP, South Korea's SK Group, Japanese utilities JERA and Osaka Gas, and France's TotalEnergies.

"It was a lot of volume at the worst possible time in the history of the LNG business -- you could not find a worse time for cargoes not to be there for there for them and for their ultimate customers," Smith said. "We had contractual obligations to them. There are certain financial penalties we paid. We're big boys, and we had to pay it. It hurt."

Freeport LNG made a number of operational improvements in response to the outage, including a more than 30% increase in LNG plant staffing.

"The only thing we could do for our customers was be completely transparent and get back up as quickly as possible," Smith said. "I believe we were able to do that, and we have maintained excellent relations with all of them, although it was it was very expensive for them and outrageously expensive for Freeport."