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Natural gas market reacts as Freeport comes back online

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The restart of LNG production at Freeport’s facility in Texas, halted by a fire in June, is supporting natural gas prices in the US and has helped to slightly normalize gas prices in Europe, still grappling with restricted Russian supplies.

A large natural gas buyer, Freeport supercools and liquifies the commodity at its facilities before exporting it. The company alone accounts for about 20% of US LNG exports and is key for European buyers who are struggling to refill their storage ahead of winter after Russia reduced its exports to about 20% of its previous activity.

Russian gas accounted for 40% of Europe’s total gas imports last year and the country’s restriction of its outflow since the start of the war have caused European prices to spike above EUR 225 a megawatt hour this spring.

Since then Europe has been doing its utmost to reduce domestic consumption, including banning the use of hot water in public facilities and reducing public lights, and has managed to build up the levels of gas in storage to 70% ahead of peak winter demand. EU countries still plan to bring total stored gas up to 80% before the cold weather starts. In turn, Russia, which supplied 40% of all of Europe’s gas last year, maintains a chokehold over its exports with the Nord Stream 1 pipeline running at 20% of capacity.

According to specialist researchers Rystad Energy there are very few viable alternatives to Russian gas that are available in the short term. International LNG terminals are already running at full capacity, Norway is exporting as much as it can and there is limited upside to exports from Azerbaijan and Algeria.

One potential option would be for the Netherlands to ramp up production from the veteran Groningen field, once Europe’s largest gas field which at full production was equivalent to the full Russian pipeline Nord Stream 1. The field’s output has been cut over the years after it caused a series of earthquakes, and a reopening would require agreements from the local and national government.

There is some relief for European importers after Freeport said that it would restart its US LNG facility earlier than planned and that it would bring on line three trains rather than one. The European benchmark gas price Dutch TTF corrected down slightly to just below EUR 200 per megawatt hour on the news.

US gas prices rise however

While the return of Freeport is creating more immediate demand for natural gas in the US, the more moderate weather in the eastern regions of the country will cap the buying over the next two weeks.

Also, recent data from the US EIA showed that working gas in storage in the US increased by 41 billion cubic feet from last week to 2,457 Bcf, a surprise as market watchers had expected that the recent hot weather would have resulted in a depletion, or at least a slower recovery, of gas in storage. Natural gas futures are trading at $8.024 per British thermal unit, down on the day and down on the week.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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