The United States, the world’s largest exporter of Liquefied Natural Gas (LNG), was forced to resort to importing LNG due to the fierce winter storm, dubbed Fern, which plunged large regions of the country into extreme cold, triggering a chain crisis in the country’s energy market. crisis in the country’s energy market..
The extreme cold caused “freeze-offs” or massive freezing of thousands of oil and gas wells in producing areas such as Texas, Oklahoma and Louisiana, causing national gas production to plummet by more than 9 billion cubic feet per day (Bcf/d), reaching its lowest level in 2 years.
The result of this was that natural gas spot prices soared at regional hubs, setting new all-time records. The benchmark Henry Hub spot price reached, at its peak, levels that exceeded even the Uri storm peaks of 2021.
The unusual import of LNG from Trinidad and Tobago
To take advantage of this price opportunity and help alleviate domestic shortages, energy majors BP and Shell decided to direct LNG cargoes from the Atlantic LNG plant in Trinidad and Tobago to terminals on the U.S. East Coast.
According to LSEG data and ship tracking reports, at least 4 cargoes of supercooled gas departed from the Caribbean bound for North America. The extraordinary thing was not the fact of importing LNG, the United States makes some occasional imports every year, but the destinations chosen for this emergency operation.
Why import to plants that only export?
Trinidad’s cargoes did not go to traditional import ports, such as Everett in Massachusetts, but to 2 flagship export terminals, Elba Island in Georgia and Cove Point in Maryland.
These facilities are designed and operate almost exclusively to liquefy domestic natural gas, extracted from the abundant U.S. shale deposits, and load it onto LNG tankers for global export. During the crisis, however, they operated in reverse.
The Elba Island terminal, for example, temporarily interrupted its liquefaction operations and instead received cargo from the “Paris Knutsen” vessel to regasify LNG from Trinidad and inject this gas directly into the national grid.
How did the Jones Act shape the crisis?
The Jones Act of 1920 is a cabotage rule that stipulates that the transportation of goods between two U.S. ports must be carried on vessels built, owned and flagged in the U.S., and crewed by a majority U.S. crew. The LNG carrier fleet that meets these requirements is minimal and their freight rates are extremely high.
That is why gas could not be transported from the giant liquefaction plants on the Gulf Coast of Texas and Louisiana. As Jason Feer, an analyst with Poten & Partners, pointed out,
It would be most efficient to move LNG cargoes from the Gulf Coast to the East Coast.
Jason Feer, analista de Poten & Partners.
It was faster and more cost-effective for companies to import LNG directly from Trinidad and Tobago, using the global LNG carrier fleet, than to try to move it internally by sea. This regulation acted as an “invisible obstacle” that distorted the logistical response to the emergency.
Lessons from a crisis and global market volatility
This event is a potent reminder of the global and liquid nature of the LNG market. A commodity can change its traditional flow in a matter of days, driven by price signals.
The importation of LNG by the United States was not a sign of structural weakness, but a pragmatic demonstration of how the market seeks efficient solutions, even if they require going down unexpected paths, to overcome a temporary crisis. This will likely reignite the debate on modernizing infrastructure and regulations to better cope with future volatility.
Source: Reuteres