Lost LNG Demand Weighs On Houston Ship Channel Basis

The unplanned shutdown of Freeport LNG has put downward pressure on the Houston Ship Channel (HSC) basis. Supply that otherwise would have fed the 2 Bcf/d LNG terminal, located south of Houston, is now being backed up into the Gulf Coast market. For more on the Freeport outage read here.

The next four months of HSC basis have fallen around 24c since early June, when the fire at Freeport broke out. The weakness in HSC coincides with the anticipated outage duration of the Freeport LNG facility. Notice how the rest of the HSC forward curve beyond October is nearly unchanged.

The chart below shows gas flows into the Freeport LNG facility since the beginning of 2021. Freeport had been running near 2 Bcf/d before the June 8 explosion. Now, with plant consumption at zero, that supply is being pushed back onto the system.

The greater Houston area is now contending with an extra 2 Bcf/d of supply. The map below highlights the proximity of the HSC hub relative to the Freeport facility.

The rapid drop in HSC basis shows how sensitive gas hubs can be to a disruption in natural gas exports. There is sometimes weakness in these regional cash markets when LNG facilities take maintenance or are knocked offline due to weather. While events like Freeport are infrequent, they do underscore the need to de-risk basis exposure through hedges.