Texas Energy Sector Struggles to Thaw After Deep Freeze

(Reuters) — A deep freeze kept the Texas energy sector in the dark for a fifth day on Wednesday, as oilfield producers remained without power and at least a fifth of U.S. refining output was still offline.

The cold snap, which has killed 21 people and knocked out power to millions of people in Texas is not expected to let up until this weekend.

Roughly 1 million barrels per day (bpd) of crude production has also been shut, according to Wood Mackenzie analysts, and it could be weeks before it is fully restored, industry analysts said.

Daily U.S. natural gas production has fallen by roughly 17% from the end of last week to 72.1 billion cubic feet per day on Wednesday, according to preliminary data from Refinitiv Eikon.

Texas produces more oil and natural gas than any other U.S. state, and its operators, unlike those in North Dakota or Alaska, are not used to dealing with frigid temperatures.

Natural gas is crucial for refiners and power generators, who cannot operate without the fuel needed to produce half of the state's electricity. The surging demand due to the cold exceeded available production and storage capabilities in Texas.

Executives at Permian oil producers said electrical outages were currently the main issue, and that until power was restored, restarting any frozen equipment would be challenging.

"We took a production hit for sure," one executive at a Permian producer said on condition of anonymity.

Pipeline and infrastructure companies were also grappling with the freezing temperatures. More than 2 million bpd of pipeline capacity to the Gulf was shut on Monday, though some lines were starting to come back online, WoodMac said.

"The entire energy infrastructure industry in Texas has been affected by cold weather including Magellan (Midstream Partners)," spokesman Bruce Heine said in a statement, adding that the company currently has enough fuel in storage to meet supply contracts, Heine added.

Nearly 4 million bpd of refining capacity has been knocked out, Reuters calculations found. That includes the nation's largest, Motiva's 600,000 bpd Port Arthur facility. Late Tuesday, Chevron Corp shut its Pasadena, Texas, refinery due to the cold.

The Houston Ship Channel reopened to very light vessel traffic on Wednesday after being shut overnight, a Houston Pilots dispatcher said. The 53-mile (85 km) waterway crucial to oil and fuel exports had been closed since Feb. 14. It is unclear if the channel will be shut Wednesday evening, though temperatures are again expected to drop, the dispatcher said.

The supply disruptions drove further gains in oil prices on Wednesday, although U.S. natural gas prices eased after rising more than 10% on Tuesday.

The state's power grid operator, the Electric Reliability Council of Texas (ERCOT), which had instituted blackouts as demand overwhelmed generation, on Wednesday said it had directed utilities to restore power to 600,000 households last night, with 2.7 million still experiencing outages.

Electricity prices surged, with next-day power for Wednesday at the ERCOT North hub rising nearly six-fold to a record of $8,800 per MWh.

Texas derives about half of its power from natural gas, with the rest coming from coal, nuclear facilities and renewables. At least one nuclear plant in the state was offline as of Wednesday morning, according to the U.S. Nuclear Regulatory Commission's web site.

Producers in the Permian Basin, the largest U.S. oilfield, said electrical outages were the main issue, and that until power was restored, restarting any frozen equipment would be challenging.

"Midland (Texas) doesn't have power, so the producers that can produce can't get their barrels to market," one executive at a Permian producer said. "It's absolutely nuts."

One oilfield services worker in the Permian said, "we weren't prepared."

Oilfield equipment used in Texas versus colder shale basins such as North Dakota or Colorado is generally not designed to withstand freezing temperatures and that has added to the headaches, he said.

With more snow expected in key production areas like the Permian and northern Louisiana, production is expected to stay offline through Friday, said Anna Lenzmeier, energy analyst at BTU Analytics.

"The second half of this week is shaping up to be just as tumultuous as the long weekend, and natural gas prices could continue to top triple digits before the weekend," she said.

Several Texas ports, including Houston, Galveston, and key liquefied natural gas (LNG) exporting sites at Freeport and Sabine Pass were closed due to weather, according to USCG Petty Officer Jonathan Lally.

"There is no crude coming in to the port right now," said Sean Strawbridge, chief executive of the Port of Corpus Christi, the second-largest exporter of crude oil in the country. That port is open, but has curtailed activity due to power outages.

The supply disruptions on Wednesday drove further gains in oil prices, which ended the session up more than 1.5%, and U.S. natural gas climbed to a more than three-month high after rising more than 10% on Tuesday.

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