US Freeport LNG shutdown to weigh on Japan if outage persists

The shutdown of the US Freeport LNG terminal is bad news for Japan, where local power utilities are stockpiling LNG for the country's summer power demand season beginning in a few weeks, with the magnitude of the impact to be felt from July onwards should the outage persist, market sources said June 9.

The news of the shutdown of the US Freeport LNG terminal came as Japan is about to enter the summer power demand season with a relatively high LNG inventory level.

"Most of JKTC (Japan, Korea, Taiwan and China) has already finished summer demand procurement," said a Singapore-based trading source, adding that this balance could be thrown out of line if the Freeport situation is sustained.

With Japan's term lifters of Freeport LNG -- JERA and Osaka Gas -- bringing most of their lifting volumes to the Atlantic, the shutdown would not have an immediate impact on their domestic demand, said another market source.

The US was the fourth-largest LNG supplier to Japan over January-April with volumes of 1.596 million mt and accounted for 6% of the total imports of 25.974 million mt, according to the Ministry of Finance data.

LNG stocks held by Japan's major power utilities extended gains June 5, rising 7.5% week on week to 2.14 million mt, the Ministry of Economy, Trade and Industry said June 8. The inventory levels on June 5 increased from 1.99 million mt on May 29 and were the the highest since stocks hit 2.16 million mt Jan. 9.

METI does not have comparable June 5 data for the previous year. However, inventory stood at 2.04 million mt at the end of June 2021 while the four-year average for end-May was 1.95 million mt, the METI data showed.

Japan is assessing the impact of the June 8 shutdown of the US Freeport LNG, METI officials said June 9, as the country heads toward the peak summer power demand season.

Freeport LNG

The three-train 15 million mt/year capacity Freeport LNG export terminal in Texas was shut down following a fire at the facility late morning on June 8, a person familiar with the operator's notification of the incident to the US Pipeline and Hazardous Materials Safety Administration said.

"An incident occurred at the Freeport LNG facility on Quintana Island at about 11:40 am," Freeport LNG said in a statement. "There were no injuries, all employees have been accounted for, and there is no risk to the surrounding community. Investigation into the incident will continue," the statement added.

In an updated statement, the operator said, "As a result of today's fire, Freeport LNG's liquefaction facility is currently shut down and will remain shut for a minimum of three weeks."

In Japan, JERA and Osaka Gas currently procure about 2.32 million mt/year each of Freeport LNG.

"We are verifying the impact on our LNG procurement, and we refrain from commenting on a number of cargoes scheduled during the plant's shutdown period," a JERA spokesperson said.

An Osaka Gas spokesperson said that the Freeport LNG shutdown would not have impact on its stable supply to Japan should the outage last about three weeks.