EnergyExplosion at Freeport Facility Sparks Higher International Natural Gas Prices, Leads to More Domestic Supply

The explosion is rippling through international and domestic natural gas markets.
June 10, 2022
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A three-week shutdown has begun for one of the nation’s largest liquefied natural gas (LNG) export plants after an explosion knocked it out of commission.

The Freeport facility is among the country’s largest exporters, processing about one-fifth of America’s LNG supply — much of which is transported to Europe on cargo ships.

Freeport LNG, which opened the facility in 2002, announced the disruption early Wednesday morning. The U.S. Coastguard set up a two mile-radius security zone around the facility after the explosion.

Gas prices in Europe jumped after news of the explosion spread, with fears growing about missed natural gas shipments to the continent so heavily reliant on energy imports. The domestic natural gas futures market dropped for similar reasons, a typical response to any event that throws uncertainty into projections of future service.

In Texas, that’s 2.1 billion cubic feet of natural gas per day that loses an international outlet, meaning more supply will be available in the U.S. during these weeks of repair. More supply for the existing demand means a lower price.

The Texan Tumbler

It’s unclear how much this will affect electricity prices in Texas, but the boon in available supply will put downward pressure on prices.

Natural gas exports from Texas’ Freeport facilities totaled nearly 684 billion cubic feet in 2021; the facility is able to pump out about 2.1 billion cubic feet per day. The facility estimates it processes between $5 billion and $7 billion annually.

The Freeport facility brings in natural gas from various parts of Texas and elsewhere through pipelines, where it then processes the commodity into liquid. This increases the amount of natural gas that can fit in an enclosed, transportable space. After being loaded on tankers and sent to numerous countries across Europe and Asia, the product is converted back into a gas where it’s then pumped through pipelines for municipal and commercial electricity consumption.

As with any other internationally-transported commodity, the effects of any slight disruption along that supply chain can ripple through the whole system.

Energy prices across the globe are rising for a multitude of reasons, and this incident will just add further fuel to the fire.

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Brad Johnson

Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.