Michael S. Smith of Freeport LNG, March 2021.
A fire Tueday at Freeport LNG, near Galveston, Texas, has knocked out America’s second-largest liquefied natural gas export facility for at least three weeks. According to a spokeswoman, no employees or contractors were injured in the incident, which sent black smoke into the sky before being brought under control. As news of the outtage spread Tuesday afternoon, natural gas prices plummeted by a dollar, to around $8.10 per thousand cubic feet.
The sprawling plant on Quintana Island, 90 minutes south of Houston, became operational in 2021 and had been exporting 2 billion cubic feet per day of natural gas, about a sixth of total LNG exports.
Freeport LNG is majority owned by billionaire Michael S. Smith, who spent two decades building the plant, which was on track this year to export some 15 million tons of LNG, the energy equivalent of about 130 million barrels of oil.
Smith operates the facility kind of like a tollroad — offtakers including BP, Osaka Gas, Jera, SK Energy have signed long-term contracts to take a certain number of tanker cargoes per year from Freeport, in return for set fees. Trading house Trafigura has a shorter-term contract for 5% of LNG production. Freeport’s revenues are on the order of $2.5 billion per year. The plant cost roughly $14 billion to build, and carried $13 billion in project finance debt upon completion last year.
I reported this feature on Freeport last year, and caught up with Smith a couple months ago for a new magazine feature on the world’s mounting energy crisis. He said he has been amazed at the rampant demand this year for American LNG, especially from European buyers looking to replace supplies of Russian gas. “It was like someone turned on a lightswitch how many people want U.S. LNG,” he said. The destination of cargoes leaving Freeport had shifted dramatically in recent months, flipping from 75% of tankers heading to Asia to nearly 80% now going to Europe. Unfortunately America’s LNG exports are maxxed out at the moment. “I don’t think there’s an LNG operator in the world who’s not producing every molecule they can,” said Smith at the time.
Detail of the Freeport LNG liquefaction plant.
There are three gas liquefaction “trains” at Freeport, and room to build a fourth, which Smith has been considering. He’s been in early discussions about finding customers and partners to help finance a Train 4, which could cost upwards of $5 billion for 5 million tons per year of liquefaction capacity. Smith said that cost inflation, especially in steel, could make an expansion 25% more expensive than the earlier phases. “We need to know what the final costs will be.”
In the short term his attention will be on getting the plant repaired and once again shipping gas to Europe, which could face a shortage of gas next winter with no option but to ramp up the use of coal. Next winter in Europe “is not a pretty picture,” said Smith. “In Germany they’re going to be burning lignite.”
Source: https://www.forbes.com/sites/christopherhelman/2022/06/08/fire-knocks-out-billionaire-owned-natural-gas-export-plant-in-texas-nations-second-biggest/