Texas oil and gas industry under pressure from Arctic explosion

The Texas oil and gas industry suffered from the pressure of an explosion in the Arctic climate that disrupted a large pillar of the global energy market and raised crude oil prices to the highest levels in more than a year.

U.S. oil prices reached $ 61 a barrel at the start of Wednesday’s trading session, the highest level since last January, after about half of oil supply was cut off in Texas, the heart of the energy industry. from the USA.

S&P Global Platts estimated that up to 3 million barrels per day of oil production were affected. The Permian basin, one of the largest oil fields in the world that accounts for more than a quarter of the United States’ total oil supply, is operating at well under half its normal capacity.

The icy weather continues to affect Texas, where temperatures are expected to drop again Wednesday night, as officials struggle to bring power generation back into the system days after the blackouts began.

The Electric Reliability Council of Texas, the grid operator, said 46 GW of power generation – more than half of the state’s total – remained offline on Wednesday afternoon, slightly improved compared to Tuesday. Ercot officials said the blackouts are likely to continue for a few more days.

Many Texans were left without power and heat for days amid the freezing wave and were forced to seek refuge with friends and neighbors or in their cars. Some took shelter in one of the state’s “heating centers” – large facilities like convention centers or mega churches that still have energy and are open to the public. About 2.9 million families remain without power.

Facing a political backlash, Greg Abbott, governor of Texas, called for an investigation into how Ercot handled blackouts, describing the network operator as “anything but reliable”.

Texas is by far the largest oil producer in the country, and producers there have been harmed by the loss of energy, frozen equipment, frozen pipelines and impassable roads that have delayed repairs, say analysts and operators.

While the oil industry operates reliably in cold climates from North Dakota to Siberia, most Texas producers have made no investments to make their equipment weatherproof for sustained sub-zero temperatures, said Parker Fawcett, an analyst at S&P Global Platts.

Gas production in the U.S. also suffered an “historic” outage, as wells and pipelines froze and supplies dropped 17 billion cubic feet a day, mainly due to problems in Texas, forcing about 20 percent of the total gas supply in the United States. country off the air, according to IHS Markit, a consultancy.

The sharp drop in natural gas supplies fueled a “negative feedback cycle” that forced natural gas generators to shut down, resulting in further reduction in energy supply and production, said Fawcett.

The loss of natural gas supplies has contributed critically to blackouts in Texas, according to Bill Magness, chief executive of Ercot. “Putting these resources back on the grid is the central solution for recovering people’s energy,” he said.

The main gas price reference in the United States has jumped more than 15% since the start of the winter storm over the 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, with a potential benefit for producers who could continue to operate.

The loss of supply threatens to reverberate in global energy markets, as the United States Gulf Coast became a critical energy trading center after the country’s shale boom fueled rising exports.

Limited supply of natural gas has been diverted from exports to critical energy and heating needs in Texas. Freeport LNG, a natural gas facility on the Gulf Coast, said in a regulatory document that it received an order from Abbot management to restrict exports from its facility.

Amid a shortage of natural gas in the state, Abbott signed an executive order temporarily requiring distributors to prioritize gas sales to Texas customers over exports outside the state.

Supply to liquefied natural gas export plants in the U.S., which are located mainly along the Gulf Coast, has almost halved in the past few days to 5.5 billion cubic feet per day, according to data from S&P Global Platts.

The United States is now the world’s third largest LNG exporter, behind Australia and Qatar, so if the low supply persists, the repercussions could be felt in gas markets around the world.

Authorities in northern Mexico blamed the blackouts on the reduced supply of natural gas from pipelines carrying gas from the Permian basin to the country. At the same time, customers in the United States had to turn to Canada for imports, which have reached peak levels of several years in the past few days.

Relief may come this weekend, when the cold period should pass and temperatures should rise well above zero. But supply disruptions could persist for a few more weeks “depending on the scale of the damage,” said Fawcett.