Texas natural gas markets recovering following freeze
Texas natural gas markets headed closer to supply balance this week after frigid weather caused a cascade of delivery headaches and triggered government mandates to prioritize gas for power demand in the state.
The powerful burst of arctic air that dipped into the lower 48 states early last week brought frozen precipitation and temperatures below 10°F (-12°C) to parts of Texas. A staggering rise in electricity demand for heating was quickly followed by widespread power outages and gas production losses in a domino effect of energy supply failures that contributed to more than 20 deaths.
US gas production — which at the peak of the storm had fallen by as much as 20 Bcf/d (567mn m³/d), according to analyst estimates — is on the upswing as Texas thaws out. US output is now sitting at 85 Bcf/d, up from the lows of 70 Bcf/d but still about 5 Bcf/d below pre-storm levels, analysts with Tudor Pickering Holt said. Canadian imports are helping plug the supply gap, running about 1 Bcf/d higher than analysts' models.
Dry-gas production in the Haynesville shale in northeastern Texas showed signs of recovery following the storm, with production on 18 February jumping by 400mn cf/d from the day prior, according to analysts with Energy Aspects. That increase is about 3pc of the shale's total estimated January output, according to the US Energy Information Administration (EIA). Energy Aspects expected the Permian basin in west Texas to restore the 70pc of output — about 11.8 Bcf/d — that was lost during the storm by mid-week this week. Full production in the panhandle's Anadarko basin, which produced about 6.3 Bcf/d last month, "may take even longer to return," the firm said.
Texas rushed to secure gas for power generation as supplies evaporated last week, with oil and gas regulator The Texas Railroad Commission on 12 February issuing an order prioritizing gas use for "human needs" through yesterday, and Governor Greg Abbott (R) on 17 February mandating that all gas be made available for sale to Texas power generation before leaving the state through 21 February.
LNG feedgas is expected to take a hit from the weather and mandates, with Energy Aspects lowering its forecast for the month of February by 15pc to 9 Bcf/d.
Texas-sized prices diminishing
Spot gas prices at locations throughout the US are being cut back down to size this week, but some remain well above year-earlier values on continued supply tightness.
The Oneok, Oklahoma, spot price for delivery today was $2.63/mmBtu, down from $988.97/mmBtu a week ago but 68pc higher than its year-earlier value. SoCal Citygates prices for delivery today are $3.29/mmBtu, down from $113.64/mmBtu for delivery on 17 February but 53pc higher than the value for delivery on 25 February, 2020.
Price movements at the Henry Hub, the national benchmark, were far more subdued. Delivery there today is at $2.80/mmBtu, down from $23.91/mmBtu a week ago but 46pc higher than a year earlier.
Prices may get another boost tomorrow as the EIA reports US gas storage inventories, which were likely walloped by heating needs last week. Energy Aspects expects a 365 Bcf withdrawal, which would beat the all-time record of 359 Bcf in January 2018.
Gas reliance undercuts reliability
State and federal regulators are just beginning to pick apart what led to the crisis, with probes and hearings in the works. Amid the upheaval, five board members of electric grid operator Electric Reliability Council of Texas (ERCOT) resigned yesterday.
Beyond better plant winterization, regulators are likely to look into how power and gas in Texas are uniquely intertwined in a way that creates a vicious cycle during extreme cold.
As the mercury dropped last week, liquids and water that are naturally present in gas output froze off at the wellhead in Texas production regions. As gas-fired power plants — which produce the lion's share of electricity for the state — lost that supply, they shut down. The shut gas-fired plants led to power outages, compounding the gas supply issues even further as pipeline compressor stations, gas processing plants and even pumps at the wellhead lost power.
Further capacity losses resulted from inoperable equipment across all varieties of power generation, including malfunctioning nuclear reactor sensors, frozen coal stockpiles and iced-over wind turbines. But the gas issues took the largest toll, as 51pc of ERCOT's generating capacity for 2021 is gas-fired.
Fitch Ratings today said the event exposed significant risks to US power and utility sector creditworthiness as power generators, retail electricity providers and local gas distribution companies will absorb unexpected costs.
Similar gas supply issues caused fewer-widespread outages in Texas during a cold snap a decade ago. A federal report on that event recommended that the state prepare for the winter heating season as fervently as it does for the summer cooling season.
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