Terminal shutdown adds 2 Bcf/d of gas supply
Houston Ship Channel, Katy’s cash base drops
South-central gas storage could reduce the deficit
Baseline prices in the East Texas gas market are down sharply following the recent suspension of feed gas deliveries to Freeport LNG. With the facility expected to remain offline through June, the additional supply could increase regional storage levels in a potentially longer-term impact on the East Texas market.
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In June 10 trading, spot prices at East Texas hubs rose that day as warmer weather fueled increased cooling demand in the Lone Star State. Despite spot market gains, base prices at metro Houston hubs have fallen in recent days as the region’s supply balance lengthens.
At Houston Ship Channel, base prices are now trading at a discount of around 40 cents from the Henry Hub. At Katy, the spot basis is now about 45 cents behind the US benchmark. At both locations, base discounts are down 20 cents or more from the 30-day averages before Freeport LNG closed, according to data from the Intercontinental Exchange and Platts.
One would expect weaker base prices in East Texas to persist – at least until the end of June. In recent trading, the monthly balance futures basis at Katy and Houston Ship Channel has weakened significantly to trade around 30 to 35 cents off the Henry Hub, according to data from Platts M2MS.
In the late morning of June 8, a fire at the LNG terminal in Freeport caused the immediate shutdown of the facility’s three liquefaction trains. In a statement released later in the day, the terminal operator said the facility would remain closed for at least three weeks, with no further details on the cause of the incident.
On June 8, feed gas flows to the Quintana Island plant dropped to just 390 MMcf/d and were then reported at zero from June 9-10. In the 30 days prior to the incident, feed gas deliveries to Freeport averaged nearly 2 billion cubic feet per day, according to data from S&P Global Commodity Insights.
From June 8-9, NYMEX gas futures prices fell on the news, falling to an overnight low near $8/MMBtu. As prices have bounced back into the upper $8 range over the past two days, doubts over the duration of the outage have chilled the bull market, which was trading above $9 earlier this week.
Over the next few days and weeks, the additional supply of approximately 2 billion cubic feet per day could have its most noticeable and lasting impact on the south-central gas storage region, where inventories are at their lowest in three years, according to data from the US Energy Information Administration. .
South Central Storage
As of the end of the week of June 3, inventories in the South Central region are now estimated at 843 billion cubic feet, or nearly 130 billion cubic feet, about 13% lower than the previous five-year average for the corresponding week.
This summer, market watchers and analysts expected the south-central storage region to face headwinds in the effort to restock – especially during the peak cooling period of the mid-July to late August, when salt domes stocks are usually reduced there to meet. -market demand.
However, following the closure of Freeport, forecasts that previously predicted record U.S. LNG export demand of over 13 billion cubic feet per day in June, July and August have since been revised. on the decline. Based on average terminal throughputs of about 2 billion cubic feet per day to Freeport, U.S. LNG exports are expected to average closer to 11 billion cubic feet per day as long as the three-train facility remains fully shut down.
With Freeport LNG expected to remain offline until at least the end of June, an additional 40 billion cubic feet or more of gas supply to the East Texas market could be redirected to storage, potentially helping the region recover from its large inventory shortfall.