When looking at negative drivers for energy commodities, our current focus tends to be on activities to the East of us.
So, it was a surprise to see a problem emerge from the West on Wednesday when an explosion at a US liquified natural gas (LNG) depot caused UK gas prices to jump by as much as 38%.
The Freeport terminal in Quintana, Texas is a key US gas export hub and responsible for nearly a fifth of all American overseas LNG shipments.
To put this in context, the US currently supplies almost half of Europe’s LNG, according to Bloomberg. In 2021, it was only around 6%, with Russia supplying 40-45% of Europe’s gas.
But with Russian supplies now restricted, any interruptions in much-needed US shipments appear fairly significant – hence the market reaction.
But thankfully, prices have since reduced, with July currently trading up 14% and Winter 22 up just 3%. But it’s still unsettling for business consumers trying to navigate the highly volatile world of energy purchasing.
A spokesperson for the Quintana depot has said the explosion, which was caused by a fire, will close the terminal for at least three weeks while the damage is repaired.
However, my colleague Andrew Crabtree, a Client Portfolio Manager on our Optimisation Desk, has been closely following this story and believes the effect on UK consumers might not be as bad as initial headlines suggested.
“The impact of this outage on businesses may be limited if the current timeline of around three weeks closure becomes reality,” he says.
“Looking at the cargoes delivered or scheduled over the coming weeks, the Quintana depot currently accounts for around 7-8% of the Western European LNG imports, so is a comparatively small part of the overall gas supply mix.”
However, says Andrew, “this story is just one of the ongoing supply/demand concerns currently being factored into forward markets. Winter delivery prices continue trading at multiples of historic averages, with questions over French nuclear output and the remaining Russian gas exports far more prominent drivers."
So, what can business energy consumers do?
Our advice is to always avoid a knee-jerk reaction and instead take a calm, strategic approach to energy purchasing.
If you’re on a fixed contract, aim to take a longer-term view when it comes to renewing, so you’re not backed into a corner when prices spike as they have with this event.
It’s worth remembering you can explore fixing a new contract months before your current contract ends.
Also consider taking a flexible purchasing approach, as this gives you far more scope to avoid price spikes and buy at potentially more opportune times. We have plenty of contract options that offer support and tailored market insight if you’re concerned about complexity.
And if you need help with defining – or reviewing – your existing strategy in the current climate – our experts on the Optimisation Desk are here to support you.
To find out more, please get in touch, either direct or through your Client Lead (existing customers). Or get in touch with our team.