At approximately 11:40AM CT on June 8, 2022, an incident occurred at the Freeport LNG liquefaction plant on Quintana Island, Texas that resulted in the release of LNG, leading to the formation and ignition of a natural gas vapor cloud, and subsequent fire at the facility. As reported previously, there were no injuries, and at no time did the incident pose a threat to the surrounding community. In accordance with Freeport LNG's safety design parameters, the LNG vapor cloud dispersion and ignition thereof were at all times contained within the fence line of the liquefaction facility, lasting approximately 10 seconds. The fire and associated smoke visible thereafter were from the burning of materials in and around the location where the incident occurred, such as piping insulation and cabling. With the assistance of local area emergency response personnel, the resultant fire was extinguished approximately 40 minutes after the initial incident.
At this time, completion of all necessary repairs and a return to full plant operations is not expected until late 2022. Given the relatively contained area of the facility physically impacted by the incident, a resumption of partial operations is targeted to be achieved in approximately 90 days, once the safety and security of doing so can be assured, and all regulatory clearances are obtained.
As Europe bangs the table about weening off Russian gas by the end of the year and wants a full ban on ICE cars by 2035 (see Irina Slav comment on this in her substack article below), Elizabeth Warren wishes she hadn’t sent letters to US natural gas company CEOs accusing them of profit gauging from sending natural gas offshore, the U.S. waives tariffs on solar imports for 2 years to show “no, really, the energy transition is happening”, the Freeport LNG terminal shows what happens when the reality of supply chains, demand and “life” throws a huge wrench into plans and the economy.
To understand just how much traders have been trying to capture the 5-7x arbitrage on natural gas from the U.S. to Europe, one needs only to look at the price action today on news of Freeport. Recall a year ago, natural gas was trading at $3/mcf and private equity producers were being smashco’d into oilier ones left right and center. What a difference a year makes.
The reality is, and has been since about May 2020, loose monetary policy has sent capital into every asset class and opportunity to make outsized return while debt is cheap. It’s inflated bitcoin. It’s inflated commodities (some supply, some demand, but come on, massive speculation as well). In my view that sucking sound from New York is that the bubble is popping as reality hits everything from 0 profit unicorns, to 30x revenue multiple companies like Tesla and Netflix to rampantly speculated on natural gas. Traders and hedge funds have been trying to take advantage of policy makers who, quite frankly, understand less about markets and the economy than my 15 year old. They let treasury and MBS purchases go on a year too long, the had little to no oversite on PPP loans, and they stopped the engine of the world’s supply chain. We now pay the piper.
It’s deeply concerning and brings me back to 2000 and 2008. I suggest watching ‘The Big Short’ again and seriously considering how bad it’s going to get. Just replace “mortgage backed securities” with “unicorn stocks”, “crypto” and “SPACs”…
Boom.
And it keeps getting better. Someone apparently talked Congress into passing the Ocean Shipping Act which basically says you can't send back an empty container from the US. Before 2018 a lot of them used to be full of US trash headed toward China until they told us they didn't want the leftovers from their exports coming back there. Eliminating a "deadhead" leg in the shipping cycle to wait until you have something to move will put the last nail in the US waterborne shipping market. Unless this is somehow a way to force shipping companies to take the polyethylene pellets that the chems aren't having trouble moving offshore now? If there's no buyer at the other end still doesn't seem like a good idea. This would be like loading up a railcar full of crude, sending it to a refinery and having them sit on it until they had something that they could send back, even though the party on the other end only needs an empty car.
Can't make this stuff up, but apparently it's pretty easy to fool a politician. Question is, who's making the money off this?
I guess an explosion/fire at an export facility is one way to create demand destruction and easing domestic prices without the associated pain.