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Texas cold snap paralyzes U.S. oil and gas industry

 

Temperatures below -10°C, the heart of the American oil industry had never experienced this before. 

In Texas, condensate water froze in the wells of the Permian Basin, the Mecca of shale oil and gas. 

Pipelines and gas pipelines went into a state of emergency due to a lack of working compressors. 

The loading of tankers and LNG carriers has stopped in the port of Houston, whose docks are frozen.


Texas cold



Backgrounds

  • East Coast must import fuel

Liquefied natural gas terminals have stopped shipments from the Louisiana coast. 

And refining has not been spared: 18% of U.S. capacity is out of service, and the U.S. East Coast is no longer supplied with gasoline or diesel. It has to import fuels from Europe.

  • Up to $900 per MBTU of gas

The world's leading crude oil producer has seen its supply plunge by a third since the beginning of the week.

Boosting the price of a barrel of US crude to over $60 and a barrel of brent to over $63. 

But it is the price of gas that has soared: the Henry Hub benchmark has risen from less than $3 to nearly $18 per MBTU, with occasional transactions at more than $900!

  • The price per kilowatt-hour multiplied by 180

In the United States, gas supplies more than a third of electricity needs, which are met by cold weather. 

To avoid the collapse of the network, operators have been carrying out massive load shedding. 

Nearly 5 million American consumers were still without power on Wednesday, February 17. 

In Texas, the price per kilowatt-hour rose from $50 to $9,000 per location.

  • Insufficient electrical storage and network

Some elected officials blame renewable energies. It is true that wind turbines have also been paralyzed by the cold. 

Others point on the contrary to the insufficiency of green energy and electricity storage. 

This polar episode should encourage the massive investments in the reinforcement of electricity networks promised by Joe Biden.


Details

Texas' oil and gas industry has been under pressure from an Arctic weather explosion. 

That disrupted a major pillar of the global energy market and pushed crude oil prices to their highest levels in more than a year.

U.S. oil prices surpassed $61 a barrel early Wednesday, the highest level since last January.

After about half of the oil supply was eliminated in Texas, the heart of the U.S. energy industry.


S&P Global Platts estimated that up to 3 million barrels per day of oil production had been affected. 

The Permian Basin is one of the largest oil fields in the world, and accounting for more than a quarter of the total oil supply of U.S. is operating well under half of its normal capacity.

Freezing weather continues to take hold in Texas, where temperatures are expected to drop again on Wednesday evening. 

As authorities struggle to restore power generation to the system a few days after power outages began.

According to The Electric Reliability Council of Texas, the grid operator, 46 GW of power generation – exceeds half state total - remained offline Wednesday afternoon.

Little improvement over Tuesday.

Many Texans were deprived of electricity and heat for days in the middle of the frost wave and forced to take refuge with friends and neighbors or in their cars. 

Some took refuge in one of the state's "warming centers" - large facilities such as convention centers or mega-churches that are still in power and open to the public. 

About 2.9 million homes remain without electricity.

Faced with a political backlash. 

Texas Governor Greg Abbott called for an investigation into Ercot's handling of the power outages, describing the grid operator as "anything but reliable".


Texas is by far the largest oil producer in the country, and producer. 

There were crippled by the loss of power, icy equipment, frozen pipelines, and impassable roads that delayed repairs, analysts and operators said.

While the oil industry operates reliably in cold climates from North Dakota to Siberia.

Most producers in Texas have not invested in weather protection to protect their equipment from sustained sub-freezing temperatures, reported Parker Fawcett, analyst at S&P Global Platts.


Climate Capital

Gas production in The United States has also suffered a "historic" disruption: 

Wells and pipelines have frozen and supply has collapsed by 17 billion cubic feet per day, mainly due to problems in Texas.

 Forcing about 20% of the country's total gas supply to be disconnected, according to IHS Markit, a consulting firm.

The sharp decline in natural gas supply has fueled a "negative feedback loop" that has forced natural gas generators offline.

Resulting in further reductions in power supply and production, Fawcett said.


The main U.S. benchmark gas price has jumped more than 15 percent. 

Since the winter storm began this weekend to around $3.25 per million British thermal units on Wednesday afternoon.

Regional prices in Texas and Oklahoma, where supply has been severely disrupted, have seen much more extreme increases. 

That could be a boon to producers who have been able to keep operating.

The loss of supply threatens to spill over into global energy markets as the U.S. Gulf Coast has become a key trading center for energy trade after the country's shale boom fuelled increased exports.

Limited supplies of natural gas has been diverted from exports to critical electricity and heating needs in Texas.


U.S. oil and gas industry


Recommended

In the midst of natural gas shortages in the state, Abbott signed an executive order temporarily… 

Requiring distributors to give priority to gas sales to Texas customers over out-of-state exports.

Supply to U.S. liquefied natural gas export plants, which are primarily located along the Gulf Coast. 

It has dropped by nearly half in recent days to 5.5 billion cubic feet per day, according to S&P Global Platts data.

The U.S. is now the world's third-largest exporter of LNG, behind Australia and Qatar. 

So if supply weakness persists, the impact could be felt in gas markets around the world.

Officials in northern Mexico blamed the power outages on reduced natural gas supplies to pipelines … delivering gas into the country from the Permian Basin. 

At the same time, U.S. customers have had to turn to Canada for their imports, which have reached multi-year highs in recent days.

Relief could come as early as this weekend when the cold snap is expected to break and temperatures .. are expected to rise well above freezing. 

But supply shortages could persist for a few more weeks "depending on the extent of the damage," Fawcett said.



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