There is a global market for natural gas, but when supplies are as tight as today, technical problems can be painful local events.
Prices for heating and power generation fuels are generally moving in the same upward direction everywhere this year as storage levels ease and Europe geopolitical tensions with RussiaAn important natural-gas exporter, grows in the wake of Russia’s invasion of Ukraine.
But on Tuesday, they went in dramatically opposite directions. The US futures benchmark, Henry Hub, fell more than 15% to $7.28 per million British thermal unit, while the Dutch TTF benchmark rose 16% to nearly $30 per mmBtu.
Two things came together on Tuesday: Freeport LNG, which liquefies and exports natural gas from Quintana Island, Texas, said its facility would not resume full operations until the end of 2022. fire last week, Even partial operations will not start for at least three months, which took observers by surprise as the company had previously telegraphed that the facility would remain shut for at least three weeks. This accounts for about 18% of the total US liquefied natural gas export capacity. Less export means more natural gas has to remain at home, possibly allowing more to be stored for the winter.
It also means less gas for Europe. Raising that issue, Russia’s Gazprom said on Tuesday that the Nord Stream, the pipeline that transports Russian natural gas to Germany, is operating at low capacity. Gazprom blames Germany
For failure to return the gas compressor units in time after repair. Whatever the reason, the pipeline is only able to supply 100 million cubic meters of gas per day, or 3.53 billion cubic feet—about 60% of the total planned supply.
The price response may seem high, as the outage in Freeport LNG is a drop in the ocean, compared to the amount of natural gas the US produces daily — about 2%. One way to interpret the wild swing is that the current price rally was probably more about geopolitical manipulation than fundamentals.
The 2% figure also marginalizes its importance. Freeport LNG has the potential to liquefy and export 2.1 billion cubic feet per day, which is about 15% of the volume the US added to its natural-gas storage a week before the fire. Using a back-of-the-envelope calculation, if the US added natural gas to storage at the same rate it did in 2021, it would fall below the five-year limit before the winter warming season. The hair was on track to end. When a shortage can cause a jump in prices. Adding an additional 2.1 bcf/day of natural gas over the next 90 days would take it comfortably within that five-year limit.
The latest development is salt in the wound for Europe, where rising energy prices are leading to close some factories, Meanwhile, US factories relieved after plunging natural gas prices following the shutdown of Freeport LNG, the event could be fodder for US industries. To lobby for less LNG exportsLike he did last year.
Industrial Energy Consumers of America, an industry group of manufacturers, issued a statement Tuesday saying that the decline in natural gas prices following the Freeport LNG development “reflects a clear correlation between the effects of inflation on LNG exports and domestic prices for natural gas.” And electricity. ”
It can also have geopolitical consequences. The US and Europe have so far maintained a united front on energy policy, with the US talking about its ability to send LNG cargo to Europe. Sudden price relief for one side and financial stress for the other increases the risk that the policy, not just prices, eventually diverges as well.
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