US gas output sinks, deliveries soar on extreme cold

Frigid arctic air that has lingered in the US this week caused natural gas production in the lower 48 states to fall by at least 12 Bcf/d (340mn m³/d), just as heating demand for gas has soared across the nation.

While the US Energy Department has so far reported gas production losses for only the south central region of the US, at 6.3 Bcf/d, analyst Anna Lenzmeier from BTU Analytics today pegged the nationwide output drop at nearly twice that amount as freeze-offs and power outages at pumps and processing plants block production. The loss represents about 13pc of total US dry-gas production. Extreme cold weather can cause water and liquids in natural gas to freeze, limiting or stopping gas flows altogether.

Most of the focus so far has been on widespread power outages across Texas, but the cold weather event has hampered power and gas service for outlying regions, too. Late last night, the Midcontinent Independent System Operator (MISO) said it has begun rolling blackouts because of forced generation outages and higher-than-forecast demand in its region. MISO also ceased providing 600 MW of power exports to Texas grid operator the Electric Reliability Council of Texas (ERCOT). The loss of power imports from the midcontinent pushed ERCOT to direct utilities to shut off power to an additional 2.8mn customers at a time when the Texas grid was already grappling with widespread outages affecting more than 3mn.

Demand for heating and electricity has climbed across the nation, with deliveries to US natural gas local distribution companies and natural gas-fired power plants in the week ended 16 February up by 5 Bcf/d from a week prior, Lenzmeier said.

Natural gas prices have skyrocketed in various parts of the country as a result of the extraordinary demand and tight supply. When the cold moved into Texas and Oklahoma it "set off a chain of events with results the likes of which had never been seen: Huge spikes in demand for gas and power coupled with massive reductions in gas production and pipeline pressures to serve the gas demand," Energy GPS said.

Prices in Oklahoma and Texas "left the stratosphere," Energy GPS said.

The spot price for Oneok, Oklahoma, for delivery today ascended to $969.50/mmBtu, up from only $4.18/mmBtu a week ago. Spot prices topped more than $687/mmBtu at the Tolar hub near Dallas, Texas, for delivery today, compared with a humble $3.27/mmBtu a week earlier.

The loss of production from the Permian basin in west Texas also caused prices as far away as southern California to soar to $120/mmBtu for delivery today, up from $3.60/mmBtu a week ago, even as temperatures in Los Angeles today are forecast at a balmy 71°F (22°C).

"What volumes from the Permian were not frozen-off were priced to stay in Texas and serve demand generated by some of the coldest temperatures in that state's history," Energy GPS said.

Temperatures are forecast to remain below freezing in the central US through 19 February, with key production areas like the Permian basin and northern Louisiana expected to have snow fall at least once more before the week is over. Substantial production volumes should remain off line through 19 February, with thawing likely to begin over the weekend, Lenzmeier said.

"Natural gas prices could continue to top triple digits before the weekend," she said.

As the cold front moves further east, the US northeast region may need to hold on more tightly to its own production, likely compounding supply tightness to the south.

"While the coldest of the cold may be behind us, the chaos is far from over," Energy GPS said.

By T.L. Hamilton