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LNG plant outage will aid U.S. natgas stocks as utility demand soars

LNG plant outage will aid U.S. natgas stocks as utility demand soars

reuters.com · 06/09/2022 11:55
LNG plant outage will aid U.S. natgas stocks as utility demand soars

By Sabrina Valle, Scott DiSavino and Liz Hampton

- A three-week shutdown at a Texas liquefied natural gas export facility will relieve supply strains on U.S. utilities that burn gas for power generation and cool domestic natural gas prices, analysts said.

Freeport LNG's export plant in Texas will remain shut for at least three weeks after Wednesday's explosion and fire, the company said on Thursday, raising the risk of shortages especially in Europe. The fire's cause has not yet been determined, it added. nL1N2XV23Z

U.S. natural gas futures NGc1 on Thursday fell as much as 5.8% to $8.18 per million British thermal units (mmBtu), a one-week low, after falling 6% a day earlier. However, prices recovered and were down about 2% after a better-than-expected U.S. inventory report.

Benchmark natural gas prices in Europe and Asia rose. nL8N2XW3YU

The plant outage means more gas will be available to buyers in the United States, and allow gas and power utilities a chance to rebuild extremely low stockpiles. U.S. storage is about 15%, or 337 billion cubic feet, below normal levels for this time of year, the lowest level since April 2019.

The Freeport LNG outage comes amid forecasts for above-normal temperatures across the U.S. South and Midwest. The outage frees up about 2 billion cubic feet per day of gas for utilities and gas-storage operators.

"U.S. power grid operations might actually benefit from this additional supply," said Bernadette Johnson, general manager for power and renewables at Enverus.

"However this is a relatively short-term event and the price impact should be short lived here in the U.S.," she told Reuters in a note.

Record temperatures have pushed up demand for air conditioning in the past weeks and contributed to soaring wholesale power prices. The U.S. state of Texas' power-grid operator last month called on residents to cut their electricity use because of grid strains. nL2N2X52H4

Power prices have been rising mostly due to insufficient upstream production and a temporary relief to U.S. natural gas prices should have limited impact on electricity bills, according to Alex Munton, director of global gas and LNG at research firm Rapidan Energy Group.

"There is very strong demand for natural gas in the power sector, and that is not going to go away," Munton said.

FACTBOX-Freeport LNG plant shutdown and main buyers at risknL8N2XW2LO

Freeport LNG plant blast adds to strain on global suppliesnL1N2XV23Z

(Reporting by Sabrina Valle in Houston, Scott DiSavino in New York and Liz Hampton in Denver
Editing by Matthew Lewis)

((sabrina.valle@tr.com | Twitter: @sabrinavalle))