August 11, 2022

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Freeport LNG Force Majeure Retraction Could Have Broad Implications

Freeport LNG reportedly retracted a force majeure (FM) declaration issued in the aftermath of a Jun. 8 explosion that took the 15 million ton per year liquefaction plant offline.

The company declared FM on Jun. 9 and then retracted it on Jun. 30, according to media reports that cited the relevant documents.

Force majeure is a provision in a contract that frees both parties from obligation if an extraordinary event directly prevents one or both parties from performing. Retracting it could cause a significant hit to Freeport's customers, although the actual impact was unclear at press time.

A legal source tells Energy Intelligence that the move to declare force majeure, then retract it, is "extremely rare" but not legally problematic and likely the most prudent path for the company.

Some contracts require a party to give notice of force majeure right away, as part of an obligation to notify the affected parties. However, the source said Freeport LNG may have realized that force majeure "wouldn't apply, wouldn't prevail, so they backed off" — and there is no legal requirement that would prevent it from reversing course.

In the early stages of an event "you don't know what caused it," which might lead a company to begin with a force majeure until the details become clear.

Freeport has not commented publicly about the alleged retraction.

Domino Effect

But Freeport's actions are not without complications. The plant's LNG offtakers have force majeure provisions with their own buyers, giving Freeport's decision "such a broad impact in the market," the source said.

If Freeport declares force majeure, its offtakers don’t have to supply their customers. But with Freeport retracting, its offtakers may have to supply their customers in turn with alternative, and potentially very expensive, LNG cargoes from the short-term market.

The legal source expects a flurry of lawsuits, although "some may reach agreement" and settle.

Freeport LNG Contracts
CustomerVol. (million tons)TrainStart-Up Date
Jera2.312019
Osaka Gas2.312019
BP4.422020
SK E&S2.232020
TotalEnergies2.232020

Freeport’s Timeline

Freeport, on the Texas Gulf Coast, represented about 18% of US LNG capacity when it suffered an explosion on the morning of Jun. 8.

The incident caused a spike in a worldwide LNG market that has become heavily dependent on US LNG exports, especially for Europe, in the wake of the Russian invasion of Ukraine.

An initial estimate of a three-week outage, several days later turned into a 90-day outage with full operations not expected until end-2022. A recent consent agreement with the federal government signaled an October restart, but some analysts are not so sure.

“While a restart of the facility by early October is not out of the question,” said consultancy ArboIQ in a note from Aug. 5, “the timelines set forth in the consent order lead us to believe a restart of initial operations to the extent indicated is a very aggressive timeline. A more reasonable timeline would put such a restart at the end of this year or the beginning of next.”

ArboIQ mapped out the various requirements by the US Pipeline and Hazardous Materials Safety Administration (PHMSA) requirements and timeline.

“Assuming PHMSA takes thirty days to approve the [restart] plan and Freeport takes 30 days to implement the plan needed to restart three liquefaction trains, two LNG storage tanks and one LNG loading dock, that initial restart would not occur until Jan. 30, 2023, far later than early October,” it said in a note.

A History of Force Majeure

More typical declarations of force majeure have occurred in recent years in connection with Covid-19, a hurricane and a jihadist assault.

For example, BP declared force majeure in April 2020 on its Greater Tortue floating LNG project. The force majeure was said to be due to Covid-19 delays for the project, which led to a need to delay the arrival of Golar’s FLNG vessel.

Then in September 2020, Cameron LNG declared force majeure on deliveries in the wake of Hurricane Laura. And TotalEnergies declared one on Mozambique LNG after a jihadist assault.
Michael Sultan, Washington

RWE Plans New German Baltic Floating LNG Import Terminal

German utility RWE is planning to install one of its two floating LNG import terminals offshore Lubmin on the German Baltic Sea coast, as part of the country’s plans to reduce its dependence on Russian pipeline gas imports.

RWE CEO Markus Krebber said during the company's first half 2022 earnings call that it is working in partnership with Stena Power & LNG Solutions and is currently in talks about this project with the German government. RWE did not comment on when the terminal would start operations.

Lubmin is close to where Gazprom’s Nord Stream 1 and 2 natural gas pipelines make landfall in Germany.

TotalEnergies is also planning to supply, install and operate an FSRU for German company Deutsche ReGas at the port of Lubmin. The Deutsche Ostsee terminal is expected to import 4.5 Bcm/yr of gas (roughly 3.2 million tons/yr) from December, Deutsche ReGas said in July.

RWE’s other floating LNG import vessel will be installed at Brunsbuettel, northern Germany, and is planned to supply first gas into the German gas grid “by the coming winter," Krebber said.

RWE's two floating storage and regasification units (FSRUs), which the company chartered on behalf of the German government, are expected to bring in 10-14 Bcm/yr of gas, Krebber said. Fellow German utility Uniper also chartered two FSRUs on behalf of Berlin.

Krebber said talks are still ongoing with different suppliers for new LNG supplies to Germany. However, European utilities have been reluctant to sign long-term LNG supply deals for the 15-20 year duration needed by suppliers to sanction new LNG projects, a possible deal breaker for clinching long-term supplies.

RWE said it brought in 40 LNG cargoes to Europe in the first half of 2022, four times the amount it imported in the first half of last year.

An onshore LNG import terminal is still expected to be built in Brunsbuettel in partnership with German state bank KfW and Dutch energy company Gasunie. Krebber said that a final investment decision on the project is expected soon.

A separate green ammonia import terminal is also planned at Brunsbuettel, expected to start operations in 2026.

RWE signed a heads of agreement in May with US-based Sempra for a 15-year deal for 2.25 million tons of LNG from the Port Arthur project in Texas, starting in 2027.

Germany, which has no LNG import terminals, passed the LNG Acceleration Act in May to move ahead with plans to reduce its dependence on Russian piped imports. The legislation temporarily eschews the need for environmental impact assessments to speed up the approval of LNG terminals. The legislation also allows for claims against LNG projects to have no suspensive effects. It also allows for terminal operation permits to expire no later than 2043, after which their operations will be limited to importing climate-neutral gases.
Jaime Concha, Copenhagen

Australian Independent to Invest in New Gas Supply for East Coast Market

Australian independent Senex will invest more than A$1 billion (US$708 million) to expand its gas production in Queensland’s Surat Basin.

The investment would help meet supply shortfalls in the country’s east coast market, and perhaps help prevent government-mandated LNG export cutbacks.

Under the investment plan, Senex would more than double gas production at its Atlas and Roma North gas developments to 60 petajoules per year (56.6 billion cubic feet) with work slated to begin in coming weeks. Senex said first gas would start within two years. This represents more than 10% of the annual domestic gas demand of the east coast market.

New Owners, New Capital

Senex attributes the investment decision to the willingness of its new owners Posco International and Hancock Energy to commit significant additional new capital to bring critical new gas supply to market. Posco International and Hancock completed the acquisition of Senex in an all-cash takeover earlier this year.

More than two-thirds of the capital commitment is planned to be invested over the next two years on gas infrastructure and wells at Senex’s Surat Basin developments in western Queensland.

The firm will soon conduct a process seeking expressions of interest from keen buyers. Senex currently supplies gas to commercial and industrial customers, including Santos-operated Gladstone LNG.

Relieve Concerns Over Gas Shortages

Senex’s project would help alleviate the concerns of the Australian Competition and Consumer Commission (ACCC) which recently said the east coast market would face a wider-than-expected gas supply shortfall of 56 PJ in 2023, assuming LNG exporters in Queensland export all their excess gas.

Senex Chief Executive Ian Davies said the ACCC's interim gas report underscored the importance of upstream competition and the timeliness of increased supply into the east coast gas market. Capital, infrastructure and regulation are identified as barriers to increasing gas supply to the east coast, he said.

“The answer to bringing down prices is a greater diversity of producers in the market and more supply. For that producers must have the confidence to invest,” he said.

“Senex is ready to invest more than A$1 billion in new gas supply and we call on governments and regulators, infrastructure owners and operators, and other gas market participants to work constructively to bring gas to market efficiently and as soon as possible.”

ACCC’s report has raised concerns that the federal government would impose curbs on LNG exports so that more gas would be reserved for the domestic market. But critics said pulling the gas reserve trigger alone would not solve Australia’s challenge with high gas and power prices. Instead, more needs to be done to encourage upstream investment and remove bans and moratoriums imposed by state governments.
Clara Tan, Singapore


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India42.7843.2242.8643.2142.4742.3043.6542.0043.5742.8942.1641.9042.23
Sodegaura, Japan43.5144.8244.8444.9143.4940.3144.4742.4944.3545.2542.7942.0043.65
Zeebrugge, Belgium58.8557.1256.7157.2158.3258.6857.9156.7357.7756.7358.4457.4758.53
Huelva, Spain50.8049.2048.8349.2850.2750.0849.9248.7549.8048.8450.3349.3550.34
Isle of Grain, UK40.4138.8838.5438.9539.9740.2639.6838.5339.4638.5440.0639.2140.14
Everett, US6.695.475.755.516.456.350.016.095.925.196.84----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback7. Mar21. Mar4. Apr18. Apr2. May16. May30. May13. Jun27. Jun11. Jul25. Jul8. Aug102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0045.990.3345.99
SW Europe0.0051.4810.7151.48
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.678.878.208.12
NBP, UK (futures)+1.4549.0747.6246.32
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF0.5362.5362.0061.15
Zeebrugge (Belgium)-7.4640.7048.16--
German NCG1.8659.9358.0755.97
NBP (UK)10.7541.2930.5431.40
US Markets
US Spot Prices
Sabine Pass, Louisiana0.658.537.888.39
Corpus Christi, Texas0.588.237.657.90
Cove Point, Maryland0.077.477.407.81
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.678.878.208.12
Second Mth0.678.868.198.11
Third Mth0.678.948.278.18
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22020406080Energy Intelligence