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Freeport LNG reported to have retracted force majeure
UNITED STATES
PRIVATELY owned Freeport LNG is reported to have retracted the force majeure it had declared after an explosion at the liquefaction and export facility in June. According to a document and trade sources cited by Reuters, the retraction could cost Freeport’s buyers billions of dollars in losses.
Force majeure is usually invoked for events outside of a company’s control, such as natural disasters, releasing it from contractual obliga- tions without penalty. Freeport’s force majeure would have allowed its LNG buyers to exit their own agreements to deliver gas to end users. But instead, with the revocation of the notice, they face a collective loss of $8bn and will need to source supplies from the spot market at elevated prices, Reuters reported, citing the trade sources and calculations by a consultancy.
According to the sources, Freeport declared force majeure on June 9 and retracted the notice around the end of June. Neither the notice nor
the retraction has previously been reported on, but a document seen by Reuters showed that the company blamed human error for the explosion in June.
“No facts have been revealed that would indicate that the incident was a result of force majeure,” Freeport told market participants in the notice on August 3.
Without force majeure in place, the company will need to pay compensation to its buyers, and the buyers in turn will still need to supply their end-users with gas from elsewhere. Freeport’s buyers include BP, TotalEnergies, Osaka Gas, JERA, SK Gas Trading and Trafigura.
Freeport LNG normally accounts for around 20% of US LNG exports. A partial restart of the facility is scheduled for October, with full oper- ations set to resume at the end of the year. The partialresumption was cleared by regulators last week. (See NorthAmOil Week 31)™
ExxonMobil considering global expansion in trading
UNITED STATES
EXXONMOBIL is reportedly considering expanding its trading operations globally amid elevated commodity prices. Citing sources familiar with the matter, Bloomberg reported this week that the super-major had stepped up efforts to boost derivatives trading after several departures over the past two years. The sources added that ExxonMobil was also reworking the pay structure for traders, including bonuses.
This comes amid rising profits for commod- ity traders. For example, Vitol Group achieved a record profit of $4.2bn in 2021, while trading profits were also cited as one of the main factors behind BP’s earnings reaching a 14-year high in the second quarter of 2022.
ExxonMobil declined to comment, telling Bloomberg that it does not engage in specula- tion over its current or future business plans. However, it did say that it continues to invest in trading.
Like other super-majors, ExxonMobil has made a foray into trading in recent years, setting up a trading team in 2018. However, it cut the capital available to its new trading team to put
on positions following the onset of the corona- virus (COVID-19) pandemic, which caused oil prices to collapse in 2020. Since then, however, commodity prices have been on the rise, boosted this year by Russia’s war in Ukraine. Though they have come down somewhat since earlier this year, they remain at multi-year highs, with Brent close to $100 per barrel and West Texas Intermediate (WTI) trading at $94 per barrel as of August 11.
ExxonMobil recorded losses of more than $3bn from its derivatives positions in the first half of this year. Bloomberg noted that the company has tended to focus trading around its assets, using them as a hedge, while less risk- averse peers Shell and BP have achieved signifi- cant trading profits.
The news service cited its sources as saying ExxonMobil had added at least three traders and analysts globally over the past two months. It has also posted a number of job vacancies for gas, freight and products traders in London and Houston.™
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