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Gulf Coast hurricanes will have increasing impact on LNG trade, IEA warns

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Gulf Coast hurricanes will have increasing impact on LNG trade, IEA warns

If Hurricane Harvey taught the global LNG market anything, it is that importers of U.S. LNG will be increasingly vulnerable to delays from severe weather in the Gulf of Mexico as the region becomes a center of LNG production capacity, the International Energy Agency said in a report.

After Harvey's first landfall midway along the Texas Coast, Cheniere Energy Inc.'s Sabine Pass was unable to load cargoes for 12 days as strong currents kept tankers from entering the Sabine Pass port between the Texas-Louisiana border. In the Gulf, 10 vessels waited to pick up their scheduled cargoes.

"This number could increase substantially in the future with liquefaction capacity ramping up in the Gulf Coast ... resulting in a delay of cargoes for the relevant LNG importers," the IEA said in the Oct. 18 report on global gas security.

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While Hurricane Harvey signaled potential problems for a growing portion of the global market, the U.S. market proved much more stable through a major storm than it was a decade ago thanks to robust shale production, the IEA said. While hurricanes Katrina, Rita and Wilma led to production shut-ins and price spikes when they hit the Gulf Coast 12 years ago, Henry Hub spot prices remained "very stable" after Harvey, according to the agency. Latin America relies heavily on U.S. LNG to balance gas shortages and fuel power generation. The IEA warned that active hurricane seasons in the U.S. would be particularly problematic for countries like Chile that may be unable to source gas from other places or manage demand. Of the five U.S. LNG export terminals set to enter service in the next few years, three will join Sabine Pass on the Gulf Coast: Cheniere's second terminal in Corpus Christi, Texas; Sempra Energy's Cameron LNG terminal; and the Freeport LNG Development LP project. All three projects shut down construction during Harvey. None of the developers reported significant damage.

"This reflected the shale gas revolution, which has created a second production pillar in the Northeast of the United States," the report said. "The surge of U.S. shale gas has diversified production in the country and shifted gas flows, as virtually all incremental U.S. production in the subsequent years has come from the Marcellus and Utica plays in the Appalachian Basin."