Texas energy sector struggles to thaw after deep freeze
The cold snap, which has killed 21 people and knocked out power to millions of people in Texas is not expected to let up until this weekend. Roughly 1 million barrels per day (bpd) of crude production has also been shut, according to Wood Mackenzie analysts, and it could be weeks before it is fully restored, industry analysts said.
A deep freeze kept the Texas energy sector in the dark for a fifth day on Wednesday, as oilfield producers remained without power and at least a fifth of U.S. refining output was still offline. The cold snap, which has killed 21 people and knocked out power to millions of people in Texas is not expected to let up until this weekend.
Roughly 1 million barrels per day (bpd) of crude production has also been shut, according to Wood Mackenzie analysts, and it could be weeks before it is fully restored, industry analysts said. Daily U.S. natural gas production has fallen by roughly 17% from the end of last week to 72.1 billion cubic feet per day on Wednesday, according to preliminary data from Refinitiv Eikon.
Texas produces more oil and natural gas than any other U.S. state, and its operators, unlike those in North Dakota or Alaska, are not used to dealing with frigid temperatures. Natural gas is crucial for refiners and power generators, who cannot operate without the fuel needed to produce half of the state's electricity. The surging demand due to the cold exceeded available production and storage capabilities in Texas.
Executives at Permian oil producers said electrical outages were currently the main issue, and that until power was restored, restarting any frozen equipment would be challenging. "We took a production hit for sure," one executive at a Permian producer said on condition of anonymity.
Pipeline and infrastructure companies were also grappling with the freezing temperatures. More than 2 million bpd of pipeline capacity to the Gulf was shut on Monday, though some lines were starting to come back online, WoodMac said. "The entire energy infrastructure industry in Texas has been affected by cold weather including Magellan (Midstream Partners)," spokesman Bruce Heine said in a statement, adding that the company currently has enough fuel in storage to meet supply contracts, Heine added.
Nearly 4 million bpd of refining capacity has been knocked out, Reuters calculations found. That includes the nation's largest, Motiva's 600,000 bpd Port Arthur facility. Late Tuesday, Chevron Corp shut its Pasadena, Texas, refinery due to the cold. The Houston Ship Channel reopened to very light vessel traffic on Wednesday after being shut overnight, a Houston Pilots dispatcher said. The 53-mile (85 km) waterway crucial to oil and fuel exports had been closed since Feb. 14. It is unclear if the channel will be shut Wednesday evening, though temperatures are again expected to drop, the dispatcher said.
The supply disruptions drove further gains in oil prices on Wednesday, although U.S. natural gas prices eased after rising more than 10% on Tuesday. The state's power grid operator, the Electric Reliability Council of Texas (ERCOT), which had instituted blackouts as demand overwhelmed generation, on Wednesday said it had directed utilities to restore power to 600,000 households last night, with 2.7 million still experiencing outages.
Electricity prices surged, with next-day power for Wednesday at the ERCOT North hub
"In extremely hot and cold temperatures, you see generators failing all together because of very similar problems. Those simultaneous failures are so important to take into account when you figure out how much excess generation is needed, and people just haven’t been doing that," said Jay Apt, co-director of the Carnegie Mellon Electricity Industry Center.
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