U.S. Pipeline and Hazardous Materials Safety Administration PHMSA June 30th announcement triggers 15% decline in Natural Gas
In my June 27th Energy Update, I said after Freeport LNG announced the damage at its plant would keep it
In my June 27th Energy Update, I said after Freeport LNG announced the damage at its plant would keep it
In my June 27th Energy Update, I said after Freeport LNG announced the damage at its plant would keep it fully offline until late September with partial operation returning thru year-end. Natural Gas declined to $6.02 per MMBtu, which was close to a full Fibonacci retracement of 61.8% from Natural Gas’s 2022 low of $3.64 to its $9.66 high reached just prior to the Freeport LNG.
But last week, after initially holding above $6.02 per MMBtu Natural Gas continued to decline on June 30th when the U.S. Pipeline and Hazardous Material Safety Administration (PHMSA) announcement triggered a 15% decline in domestic Natural Gas prices:
In their preliminary report the PHMSA said continued operation of Freeport’s LNG export facility without corrective measures may pose an integrity risk to public safety, property, or the environment. Domestic Natural Gas prices declined due to the markets concern the process of reviews, repairs and approvals may take longer than originally anticipated.
These concerns are valid with PHMSA ordering Freeport LNG to submit within 60 days a plan for an outside investigator to provide a report on the extent of the damage to the facility. PHMSA did not say how long it would take to approve a plan; therefore, it is not surprising domestic Natural Gas prices tumbled last week.
At this time no one knows how long it will take PHMSA to approve a plan submitted by Freeport LNG, but on their website Freeport LNG states they will fully cooperate with PHMSA, the Federal Energy Regulatory Commission (FERC) and the United States Coast Guard (USCG), to obtain the necessary approvals to safely restart operations.
A comprehensive review by Freeport LNG is already underway to ensure all necessary corrective actions are identified and fully implemented prior to resuming operations. They estimate the resumption of partial liquefaction operations by early October, and continue to target year-end for a return to full production.
If Freeport LNG’s meets these goals, we may look back and realize the recent declines were an unexpected long-term buying opportunity, with Natural Gas testing the 2014 and 2018 highs within its 2011 to 2021 trading range:
When a market breaks out from a long-term base, what previously was resistance often becomes support, and previous highs often become support zones.
As I explained in the June 20th Energy Update, although the delay in reopening Freeport LNG may lower risk of higher prices this summer, they were not eliminated, and may increase long-term risk of higher prices here and abroad; therefore, I believe it is wise to take advantage of recent unexpected declines in Natural Gas to secure long-term Gas and Electricity hedges.
And as I explained in previous reports, Natural Gas prices continue to be lower in the forward markets from 2023 thru 2026; therefore; if you have agreements expiring within the next few months, I recommend taking advantage of Natural Gas’s recent decline in domestic Natural Gas prices and secure longer-term agreements including lower prices from 2023 thru 2026:
Also, as I said in recent reports, when appropriate our consultants will also help you secure blend and extend agreements to take advantage of an even sharper longer-term pullback if and when it finally comes. The bottom line is we are living in a period of great uncertainty, and we are here to help you navigate these perilous times
Not every client’s risk tolerance and hedging strategy are the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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