Freeport LNG took three weeks to return to full production after Hurricane Beryl

It has been about a month since Hurricane Beryl made landfall south of Houston, causing widespread power outages over the entire Houston metro area down to Freeport and Victoria. At landfall, Beryl was a Category 1 hurricane, far short of its destructive Category 4-5 peak as it decimated the islands of the Eastern Caribbean. However, Beryl’s impact not only highlighted shortcomings about the resilience of the electrical distribution grid of the Texas coast and Houston, but it also led to the Freeport LNG plant being shut down for a period of time. This wasn’t the first time a hurricane caused U.S. Gulf Coast (USGC) LNG facilities to be shut down. In August 2020, Hurricane Laura made landfall in Cameron, Louisiana. Laura shut down Cameron LNG for about a month and Sabine Pass LNG for about a week. The map below, in Figure 1, shows the tracks of Beryl and Laura, and LNG plants that are either operating (blue dots) or under construction (yellow dots).

LNG plants must be located at a sea-level port in order to accommodate LNG shipping. As a result, LNG plants on the USGC are vulnerable to hurricane impacts. LNG facilities, including ship-loading equipment, are at risk of damage by strong winds, storm surge, and powerful waves. In addition, feed gas supplies and utilities could be affected as offshore production platforms, onshore pipelines, and gas processing facilities may need to be shut down, and power lines and plants could be brought down by the storm, as in Hurricane Beryl’s case. Finally, hurricanes can also devastate whole communities, affecting plant operational staff and key support services.

Freeport LNG is one of the largest operational LNG plants in the U.S., with a nameplate capacity of about 2 billion cubic feet per day (Bcfd) of gas, or 15 million tons of LNG per year (MTPA). As Hurricane Beryl approached, Freeport shut down all three trains on Sunday, July 7, a day ahead of Beryl’s landfall. It was the only LNG plant to shut down due to Beryl, as Cheniere’s Corpus Christi and Sabine Pass plants were located outside of the hurricane’s track, (shown in Figure 1 above) and remained online throughout the storm.

Freeport LNG took two weeks to resume loading, with the next ship leaving the facility on July 22. Full production resumed on Sunday, July 28, a full three weeks after Freeport LNG shut down in anticipation of Beryl’s landfall.

Freeport LNG is primarily connected to the Katy Hub, one of the most active natural gas hubs. The Louisiana LNG plants, which did not shut down during Beryl, are more closely connected to Henry Hub. In addition, power outages reduced power demand in the Houston region by approximately 0.5 Bcfd for a few days after the storm, on top of the estimated loss of 2 Bcfd of Freeport volumes. Thus, we can see the impact that Freeport LNG’s outage had on relative gas prices if we consider the differential between Katy Hub and Henry Hub prices.

Figure 2 below shows that the market anticipated Freeport’s impending shutdown, with Katy Hub trading over $0.50 per million British thermal units (/MMBtu) below Henry Hub on the last trading day before the hurricane. Before Freeport resumed loading for the next two weeks, we see that the average differential of -$0.22/MMBtu in late June and early July doubled to -$0.44/MMBtu. Once Freeport resumed loading, the differential reduced to -$0.33/MMBtu, and once Freeport resumed full operations, the differential rose back to pre-hurricane levels. This clearly shows the impact of Freeport’s shutdown on the relative prices between Katy Hub and Henry Hub.

Previous Freeport LNG shutdowns have had large impacts on the Katy Hub price

This is not the first time that Freeport shutdowns have impacted the Katy Hub—Henry Hub differential. In June 2022, Freeport LNG experienced an explosion and fire at the facility unrelated to any storm or hurricane. As a result, the facilities were shut down until March 2023.

In this period, Katy Hub traded around $1/MMBtu lower than Henry Hub, compared to less than $0.20/MMBtu before the 10-month shutdown, as shown in Figure 3 below.

After starting back up in March 2023, Freeport had intermittent operational issues in September 2023, and notably in January 2024 when all three trains had a trip or shut down, causing an emissions event according to filings with the Texas Commission on Environmental Quality. Additional issues in April and May 2024 caused Freeport to reduce its production rates.

Figure 3 shows that during this period of intermittent issues, the Katy Hub – Henry Hub differential was less affected than in the 2022-2023 outage but showed volatility and differentials exceeding $0.40/MMBtu.

Future hurricane landfalls will likely have larger impacts on the variability of hub prices

Based on data from the National Oceanic and Atmospheric Administration (NOAA), there have been 64 direct hits by hurricanes in Texas and 63 in Louisiana, in the last 172 years. All of the USGC LNG plants currently in operation or under construction are located in these two states. Thus, LNG plant shutdowns arising from hurricanes making landfall in Texas and Louisiana will be a recurring theme in the future. But the question is, how does the build-out in LNG plant capacity across the USGC affect this?

The number and capacity of U.S. LNG plants is set to increase, with nearly 10 Bcfd of capacity under construction. This will almost double the current LNG capacity. The chances of future hurricanes shutting down USGC LNG facilities depend on the diversity of the plant locations (i.e., the more spread out they are, the greater the chance of at least one plant being impacted). Conversely, the more concentrated the LNG capacity is in a particular location, the greater the potential impact on gas exports, demand, and, consequently, local gas prices.

We can group LNG plants in operation or under construction into four major geographical groups (refer to Figure 1 above and Table 1 below). The first group includes the Texas-Louisiana (TX-LA) border region, home to Sabine Pass, Golden Pass, Cameron, Calcasieu Pass, and Port Arthur. The second and third groups encompass the central Texas region, connected to the Katy Hub, with Freeport, and Plaquemines, which is located in eastern Louisiana on the Mississippi Delta. Finally, the fourth group contains the southern Texas area, which is connected to the Agua Dulce Hub, has Corpus Christi in operation, and is expected to start up the Rio Grande facility later in the decade.

The new plants near Brownsville, Texas, and Plaquemines on the Mississippi Delta increase the chances of at least one plant being affected by hurricanes.

The TX-LA border region in particular stands out as a notable concentration of LNG plants, with more than 10 Bcfd of capacity expected to be online by the end of the decade. When we consider that a Category 1 hurricane like Beryl could impact Freeport LNG for three weeks, a single major hurricane making landfall at Sabine Pass could potentially impact approximately half of all U.S. LNG capacity, or about 12% of current total U.S. gas consumption.

Conclusions

Hurricane Beryl demonstrated the potential threat of hurricanes to LNG facilities, impacting Freeport LNG for about three weeks. The increasing number of LNG plants on the USGC, especially concentrated around the TX-LA border, will increase the risks and consequences of LNG facilities being offline due to future events. The potential impacts not only include the loss of export volumes but also price impacts on affected regional gas hubs. The impact on hubs is not restricted to hurricanes but can also result from an accident or other incident that takes a plant offline.