An extended shutdown of the Freeport LNG Development LP terminal in the U.S. was bad news for natural gas buyers from Japan to Argentina at a time when the global market had started to stabilize after supply shocks from Russia's four-month-old war in Ukraine.

"The big off-takers will be in trouble," an Atlantic-based trader said of the market impact.

In Japan, where utilities were stockpiling liquified natural gas for the country's summer power demand season that begins in a few weeks, the impact from a persistent outage at the Texas facility would be felt from July onward, market sources said. For the moment, Japan holds a relatively high LNG inventory level.

In Europe and the Americas, buyers affected by the outage include Argentina's IEASA SA, Britain's BP PLC and France's TotalEnergies SE, which has off-take commitments tied to train three at Freeport LNG. Japan's long-term buyers of Freeport LNG — JERA Co. Inc. and Osaka Gas Co. Ltd. — have been bringing most of their lifting volumes to the Atlantic, a dynamic that will transfer more of the impact from the Freeport LNG situation to Europe, at least in the immediate term.

The Freeport LNG terminal operator said the outage was expected to last at least three weeks, after a fire June 8 that shut down the three-train export facility on the Texas coast with a capacity of 15 million tonnes per year. In a letter to customers declaring force majeure, Freeport LNG said vessel loadings would be canceled through at least June 30. The facility will not be able to receive feedgas or deliver LNG during the outage, according to a copy of the letter viewed by S&P Global Commodity Insights.

The letter also said an explosion occurred in the LNG tank area of the facility the same day.

In a June 9 email to reporters, a spokesperson for the terminal said Freeport LNG would have no comment about the force majeure. Declaring force majeure is an uncommon step that allows a company to waive contractual obligations as a result of circumstances it cannot control, such as equipment failures and natural disasters.

Investigation, impacts

Freeport LNG shut down the terminal following the fire, and the operator notified the U.S. Pipeline and Hazardous Materials Safety Administration of the incident. An investigator for the agency was dispatched to the site, about 50 miles south of Houston.

The shutdown sent domestic U.S. natural gas prices tumbling, but it would take a prolonged outage of the facility to meaningfully affect the U.S. supply-demand picture, according to banking and investment management firm Goldman Sachs Group. In a note to clients, the bank maintained its summer and winter price forecasts for the U.S. Henry Hub benchmark of $6.80/MMBtu and $5.60/MMBtu, respectively. Goldman also said it would keep its price forecasts for Europe's benchmark Dutch Title Transfer Facility gas hub of €89/MWh for the summer and €86/MWh for the winter.

A long-lasting outage could lead to greater coal utilization, putting pressure on Henry Hub prices, the bank said.

Uncertainty following the event could further support the Dutch Title Transfer Facility price; DES Northwest Europe, the delivered price of LNG into Northwest Europe; and the Platts Japan Korea Marker, the benchmark price for spot LNG delivered to Northeast Asia.

But the near-term impact of the Freeport outage on U.S. LNG exports would likely be moderated in the first week by the use of LNG already in storage, Goldman said.

Freeport customers

South Korea's SK E&S Co. Ltd. signed a long-term deal in 2013 for 2.2 Mt/y of supply from Freeport LNG. The LNG exporter also has off-take commitments with JERA and Osaka Gas. TotalEnergies controls over 2.2 Mt/y of LNG from the third train at Freeport LNG. It inherited that commitment when it acquired Toshiba Corp.'s U.S. LNG business in 2019. BP is also an off-taker. Other buyers in the Atlantic get Freeport LNG volumes from the long-term off-takers.

"Most of [Japan, Korea, Taiwan and China] has already finished summer demand procurement," a Singapore-based trading source said. The source said the stable situation could be thrown off balance if the Freeport shutdown is sustained.

The U.S. was the fourth-largest LNG supplier to Japan from January through April, with volumes of about 1.6 Mt, and accounted for 6% of Japan's total imports of about 26 Mt, according to data from Japan's Ministry of Finance.

Japan's major power utilities had 2.14 Mt of LNG stockpiled as of June 5, according to the country's Ministry of Economy, Trade and Industry.

"We are verifying the impact on our LNG procurement, and we refrain from commenting on a number of cargoes scheduled during the plant's shutdown period," a JERA spokesperson said.

An Osaka Gas spokesperson said the Freeport LNG shutdown would not impact the reliability of supply to Japan if the outage sticks to the expected three weeks.

Commodity Insights reporters Harry Weber, Takeo Kumagai and Masanori Odaka write for S&P Global Platts Dimensions Pro. S&P Global Commodity Insights is owned by S&P Global Inc.