The Daley Note: December 26, 2022
Freeport LNG is unlikely to restart from an extended outage until the back half of January 2023, dealing a blow to the near-term bull case for natural gas.
In a Dec. 23 status update, Freeport LNG pushed back by several weeks the timeline to return to service. The company has finished the repair work required to restart operations and just completed all questions in a data request from the Federal Energy Regulatory Commission (FERC). Given the time required for regulators to review the responses and seek any clarification, Freeport said it doesn’t anticipate restarting until the second half of January 2023.
The latest delay is the fifth by Freeport LNG since an explosion on June 8 shut down the Texas liquefaction facility. The incident wiped out ~2 Bcf/d of gas demand for LNG exports and has helped push natural gas prices lower. To date, the Freeport outage has removed ~400 Bcf of gas demand in 2022 compared to normal operations.
Freeport LNG originally planned to restart in early October but has repeatedly pushed back the timeline as the company seeks approval from regulators for a revamped operations plan. A root-cause audit blamed employee fatigue from understaffing as a contributing factor that led to the explosion. In a Nov. 18 update, Freeport said it planned to restart in mid-December. Following a visit from the Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA) on Nov. 30, Freeport once again delayed the timeline to year-end 2022.
Then on Dec. 12, FERC filed a hefty engineering information request as a follow-up to the PHMSA inspection. The request by FERC includes documentation of safety training for all Freeport personnel, additional hiring to address employee fatigue, plans to conduct an emergency drill with local emergency responders, and numerous incomplete repairs noted during field observations.
As a result of the back-and-forth with regulators, East Daley has pushed back the expected restart of Freeport LNG until mid-February 2023 in our US Macro Supply and Demand Forecast. We do not expect full operations to resume until 2Q23. Based on this timeline, we forecast LNG exports to average 12.0 Bcf/d in 2023, or a Y-o-Y demand gain of ~1.6 Bcf/d. We've been directionally bearish on natural gas in 2023 due to rapid production growth, and the latest news on Freeport reinforces our market view. – Oren Pilant
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