Freeport LNG explosion (2022)

Quintana Island, Texas, June 8, 2022: at the Freeport LNG liquefaction terminal, an LNG line isolated between closed valves overpressurizes and ruptures. The escaping gas ignites. No casualties, and damage concentrated in one piping area. Yet the terminal, which accounted for about 17% of US LNG export capacity, shuts down, and it will only restart in February 2023, train by train, after federal regulators sign off. Summer 2022 was when Europe was replacing Russian gas with US cargoes: the TTF price jumped on the news. For insurance, the file weighs far more in business interruption than in damage. Repairing the piping is a modest job; eight months of downtime at a plant this size, in the middle of a price spike, cost much more. The owner's business interruption cover pays the lost margin after a time deductible, within its indemnity period. Freeport operates on a tolling basis: its customers, European and Asian energy companies, reserve capacity, pay a fixed fee and lift their own LNG. Freeport declared force majeure, which some customers disputed while claiming the extra cost of their replacement spot purchases. That extra cost falls outside their property policies, since they suffered no damage themselves. Only a contingent business interruption cover naming the terminal could have responded, and the market rarely places such cover at those amounts. The loss reminded downstream gas underwriters that a single site can concentrate a national share of exports, and with it an accumulation of business interruption across dozens of buyers. Not to be confused with a classic take-or-pay contract, where the buyer pays for gas even if it does not lift it: here it was the service provider that could no longer deliver.