Page 4 - NorthAmOil Week 07 2021

NorthAmOil COMMENTARY NorthAmOil

Extreme cold causes major

disruption in Texas and beyond

Below-freezing temperatures knocked 2mn bpd of US oil production offline this week
and resulted in a host of other disruptions to gas supplies and power generation

US BELOW-FREEZING weather is causing heavy cubic feet (481mn cubic metres) per day accord-
disruption in the US this week, including to ing to consultancy IHS Markit, mostly as a result
WHAT: both upstream and downstream oil and gas of problems in Texas. This equates to around
US production, transport operations. The extreme cold has caused a crisis 20% of total US gas supply going offline.
of oil and gas and power in Texas, where infrastructure is not designed The Permian is a major producer of both oil
generation have all been to withstand such low temperatures. The state and gas.
disrupted by extremely continues to struggle with a severe shortage of Initially the supply hit was expected to be rel-
cold weather this week. power, while disruptions to energy operations atively short-lived, with temperatures in Texas
also continue. set to rise over the course of this week. However,
WHY: Oil production outages – mainly in the Per- speculation has since emerged that unusually
Infrastructure in Texas in mian Basin, which straddles Texas and New cold weather could last for weeks. Already, the
particular is not designed Mexico – peaked at above 3mn barrels per day cold spell helped push West Texas Intermediate
to withstand extremely as a result of the freeze. The daily impact aver- (WTI) crude prices above $61 per barrel for the
cold weather. aged around 2mn bpd as of February 18, accord- first time in more than a year. Regional prices in
ing to consultancy Rystad Energy, with Texas’ the areas most affected have risen even further,
WHAT NEXT: Eagle Ford shale and other producing regions boosting those producers that have been able to
While much of the also seeing some outages. Bloomberg, mean- keep operating.
impact of the crisis will while, cited anonymous trade and industry It is not only production that has suffered,
be short-lived, some executives as estimating the outages had peaked though. Gas-processing plants and pipelines
of it could have lasting at more than 4mn bpd, or close to 40% of total in Texas also shut as a result of liquids freezing
consequences. US output. inside pipes that are not designed for extremely
Additionally, around 4mn bpd of refining low temperatures, while power and heating
capacity was estimated to have been knocked demand surged. As gas is the primary fuel used
out, accounting for around 21% of total US for electricity generation in Texas, rolling power
capacity according to Reuters. outages across the state followed, affecting more
Natural gas prices in the central US skyrock- than 4mn homes and businesses.
eted to record highs in the hundreds of dollars “It appears that a lot of the generation that
per million British thermal units, while many has gone offline today has been primarily due Natural gas
power prices hit market caps. to issues on the natural gas system,” the Electric
Reliability Council of Texas’ (ERCOT) senior prices in the
Disruption director of system operations, Dan Woodfin, central US
The production losses were attributed to a com- said during a call with reporters on February 16.
bination of well shutdowns, flow-line outages ERCOT is an independent organisation that skyrocketed to
and disrupted road transport, all caused by the operates Texas’ power grid, and it has come
extreme weather. This came as production con- under heavy criticism for the power genera- record highs in
tinued in other regions such as North Dakota’s tion shortages as the crisis in the state unfolded,
Bakken play, where infrastructure is better including from Texas Governor Greg Abbott. the hundreds
designed to withstand extremely low temper- As of February 17, around 46 GW – more of dollars per
atures. But in Texas, most producers have not than half of Texas’ total power generation capac-
made investments to weatherproof their equip- ity – remained offline, little changed from the million British
ment for sustained below-freezing temperatures, previous day.
believing this to be unnecessary. A number of refiners in Texas moved to shut thermal units.
Texas normally produces around 4.6mn bpd. down their plants, including some of the larg-
Rystad commented on February 15 that it est in the country, such as Motiva Enterprises.
expected a “moderate” impact on production Refineries and chemical plants in Texas owned
for February, with hydraulic fracturing and by Royal Dutch Shell, Valero Energy, Exxon-
flowback activities affected more seriously than Mobil and Total were also shut down as a result
drilling. of the freeze. This marks the biggest weath-
Gas production also took a hit, falling by 17bn er-related hit for US refiners since Hurricane

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