Gas exporter Freeport LNG retracted the force majeure it initially declared after a June explosion, Reuters reported Wednesday, in a development that could cost its buyers billions of dollars in losses.
The force majeure would have allowed Freeport's buyers of liquefied natural gas to exit their agreements to deliver gas to end users, but instead they are facing $6B-$8B in combined losses as they source alternative supplies at elevated spot market prices, according to the report, which cites trading sources with knowledge of the matter.
The buyers reportedly included BP ( NYSE: BP ), which entered the largest contract at 4.4M metric tons/year through 2040, as well as TotalEnergies ( NYSE: TTE ), Japan's Osaka Gas, Japanese power generator JERA and South Korea's SK Gas Trading.
Freeport LNG is said to be offering buyers compensation of ~10% of the value of the purchased and undelivered cargoes or lump sums of $3M-$5M per LNG cargo.
Based on Freeport paying 10% compensation per lost cargo, losses may amount to ~$2.3B for BP ( BP ) and ~$1.1B for TotalEnergies ( TTE ) on a mark-to-market basis.
According to Reuters, the buyers had paid Freeport $30M-$50M per cargo, with the fuel then sold to end users at a premium usually amounting to a few millions of dollars per cargo; but Freeport's buyers would have to pay $100M per cargo based on Wednesday's spot market prices to replace the lost volumes, as LNG prices have doubled since the June 8 explosion.
"There are ongoing discussions taking place right now with Freeport, as the compensation they are offering will not cover taking a spot cargo at today's rates," one of the sources told Reuters.
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Freeport LNG does not expect full operations to resume until the end of the year, although a partial restart is expected in October .
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Freeport LNG retracts force majeure, widening losses for gas buyers - Reuters