When a June 8, 2022 fire at Freeport LNG export facility shut-down flows, I assumed the worst. I was not the only one. According to Reuters, “Natural gas prices slumped in the United States and soared in Europe on news of an extended shutdown. The facility accounts for about 20% of U.S. LNG exports and has been a major supplier to European buyers seeking alternatives to Russian gas since its invasion of Ukraine.” (More and more and more.)
In June last year the ability to replace Russian natural gas pipeline flows to Europe with global LNG deliveries seemed very iffy. Losing a major US node would not help. In August when Freeport’s shut-down was extended, I was worried — and said so here.
But even without Freeport’s capacity, LNG flows to Europe have fulfilled this winter’s European demand (and exceeded expectations).
Sunday morning the BP-chartered Kmarin Diamond departed Freeport for Suez, additional flows from Freeport are expected to resume soon. This morning S&P Global reports, “European LNG prices have fallen to an 18-month low with returning Freeport volumes adding further bearish sentiment to the market” (See chart below). The global natural gas market remains constrained, but a mild winter, effective demand management, and proactive procurement has kept Europe supplied without Freeport’s help.
I underestimated the enormous power of effectual demand to attract abundant supply. When suppliers are confident of effectual demand, volumes and velocity will move accordingly. There are always capacity constraints — and less effectual sources of demand may suffer. But when supply is available and there is sufficient value to trade for supply and this value can be effectively expressed, supply will almost always flow.
EUROPEAN BENCHMARK (TTF) LNG FRONT-MONTH PRICING
February 23 Update: S&P Global provides the following infographic. S&P Global also reports, “The return of Freeport volumes is a bullish factor for US markets and a bearish factor for international ones,” Michael Stoppard, global gas strategy lead at S&P Global Commodity Insights, said in an interview. “The return of Freeport LNG is expected to be the single largest supply addition to the global LNG market in 2023 relative to 2022.” As Freeport ramps up to full operations, its return stands to ease tightness in the global gas market, while cutting a US supply overhang that is weighing on domestic prices.