The Fuse

Scars From Texas Energy Crisis Could Linger

by Nick Cunningham | February 22, 2021

The Texas electricity crisis has mercifully ended, although water delivery for millions of people remains patchy amid widespread damage to water pipes and infrastructure ill-equipped to handle frigid temperatures.

But even the restoration of electricity does not mean that impacts are over. Scars from the historic blackout could stretch for days or even weeks.

Oil and gas dig out from cold

It could take at least two weeks for the restoration of around 2 million barrels per day (Mbd) of Texas shale production that was shuttered because of the cold snap, according to a Reuters analysis. Oil and gas wells froze over, gathering lines froze and suffered damage, and even truck and storage tanks saw damage from plunging temperatures.

It amounted to the largest ever weather-related shutdown. The estimates on the outage – 2 to 4 Mbd – are also imprecise, highlighting the degree to which the state is still trying to wrestle with the breadth of the fallout. Either way, the volumes are huge, equivalent to roughly 2 to 4 percent of total global oil supply. The global impact could be limited, however, because demand destruction was nearly as high.

“I think it will be a while before things get better out in the field.”

Restoring operations may not be as simple as flipping a switch. “I think it will be a while before things get better out in the field,” a Permian drilling executive told Reuters. JPMorgan estimates that the global market will see 16 to 18 million barrels less in February as a result of the crisis.

Refineries also saw major disruptions, with about a fifth of the state’s capacity knocked offline. “We are 2-1/2 to three weeks away from restoring most operations” at affected refineries, said Andrew Lipow, president of Houston-based consultancy Lipow Oil Associates, according to Reuters.

Still, the refining industry appeared to dodge a bullet, avoiding major structural damage and some refineries are already ramping up operations. The nation’s largest refinery, Motiva’s 600,000-barrel-per-day Port Arthur facility, announced on Monday that it would begin resuming operations. A few others also announced plans to restart, including ExxonMobil’s 362,000-bpd Beaumont refinery, and Valero’s 293,000-bpd Corpus Christi refinery.

Texas Governor Greg Abbott ordered a temporary halt to exports of gas out of the state, including in the form of LNG. The order raised thorny legal questions, but it only covered a five-day period. Nevertheless, the physical interruptions may result in roughly 10 LNG cargoes being lost, according to a Bloomberg survey. However, Morgan Stanley said that exports should recover quickly without too much of a global impact.

Picking up the pieces

Financial damage could be more profound. Some natural gas suppliers that remained online scored “jackpot” prices amid supply shortages. “With all the events in Texas in the last week, obviously, we’ve seen incredible spot prices for our swing gas,” CFO Roland Burns told analysts on a conference call last week.

With natural gas prices temporarily spiking above $1,250 per million Btu in some locations, companies scrambled to pay for supply.

Others were not so lucky. Gas traders likened the onset of crisis last Monday to the collapse of Lehman Brothers in 2008, generally viewed as the iconic spark of the global financial crisis. With natural gas prices temporarily spiking above $1,250 per million Btu in some locations, companies scrambled to pay for supply. Atmos Energy Corp, a gas distributor, was forced to spend $3.5 billion to secure enough gas. Atmos said on Monday that it now needs to raise capital to cover for the outlay, and is “evaluating a number of financing alternatives,” which may include taking on more debt.

Energy retailer Just Energy Group warned that it may not be able to continue as a going concern, having lost $250 million in just one week. “The losses exceed current liquidity and will likely require a capital injection to get JE through this abnormal event,” CIBC analyst Mark Jarvi said in a note to investors.

For ordinary Texas citizens dealing with electricity and water shortages, they also have to contend with other catastrophes. In order to prevent damage to processing units as refineries went into shutdown mode, large plants flared and released huge quantities of toxic chemicals into the sky. The five largest refiners emitted roughly 337,000 pounds of pollutants, including benzene, carbon monoxide and hydrogen sulfide, according to Reuters. Restarting operations is also a dirty process.

Meanwhile, a public outcry erupted after individual ratepayers were handed massive electricity bills after they were exposed to extreme price fluctuations during the crisis. In response, Texas regulators temporarily ordered energy providers not to send huge bills to customers until a solution could be found.

Finally, one of the longer-term impacts from the electricity crisis – potential policy changes – remains to be seen. There are now multiple investigations into ERCOT, the grid manager, separately led by the Texas attorney general, the Texas Public Utility Commission, the Federal Energy Regulatory Commission (FERC) and even the U.S. Congress.

There is no guarantee that major changes will occur soon, or that they will occur at all. But Texas grid’s separation from other electric grids, the lack of a capacity market, and the lack of weatherization at the state’s major energy assets, are all now under scrutiny.

Millions of Texans are surely thankful that the immediate electricity crisis appears to be over. But the aftermath from the disaster will be felt for much longer.