PHMSA Blocks Restart of Freeport LNG Plant Citing Unsafe Conditions

(Reuters) — A U.S. pipeline safety regulator on Thursday said it found unsafe conditions at a Texas liquefied natural gas export facility and will not allow owner Freeport LNG to restart the plant until an outside analysis is complete.

A June 8 blast and fire knocked out Freeport LNG's Quintana plant, which exports about 15 million tonnes per year of the chilled fuel.

The preliminary finding by the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA) indicated a restart could not happen before September at least.

"Continued operation of Freeport's LNG export facility without corrective measures may pose an integrity risk to public safety," PHMSA said in its preliminary report.

The report on the second-biggest U.S. LNG export plant indicates further global shortages and higher prices in Europe and Asia. The loss of Freeport's exports comes amid reduced gas flows to Europe from Russia's Nord Stream pipeline, and as China's LNG demand is recovering from COVID-19 shut-ins.

A Freeport LNG spokesperson declined immediate comment.

The regulator ordered the company to submit within 60 days a plan for an outside investigator to provide a report on the extent of the damage to the facility. Freeport must also hire a third-party to review the state of its LNG storage tanks.

Only after the reviews are completed can the company submit a plan to repair the damage, it said, further complicating the company's plan for a partial restart.

Closely-held Freeport LNG has said the likely cause of the blast was an over-pressurized pipeline and that the plant's ability to chill natural gas into a liquid for export was not damaged. 

An isolated safety valve led a 300-foot (91-m) pipe to become over pressurized, releasing LNG and methane into the facility and leading to the blast, PHMSA said in its report.

The outage of an export facility that was a major consumer of U.S. natural gas has sharply cut domestic prices. On Thursday, prices for August delivery fell 7% to $6.05 per million British thermal units with the contract on track for a monthly drop of 26%.

About 70% of the Freeport LNG plant's exports in the past few months went to the European Union and Britain, with France, Turkey and Netherlands among the largest European importers this year.

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