In cold Texas, gas vendors take advantage of a bargain


The official autopsy of the great February blackout in Texas quickly established a clear timeline of events: Electric utilities cut off power to customers and distributors as well as to natural gas producers. that triggered a negative feedback loop that pushed the state deeper and deeper. in the freezing darkness.

It is now becoming clear that while millions of Texans endured days of power outages, the state’s gas producers have contributed to fuel shortages, allowing pipelines and traders to reap big profits.

Interviews with energy officials and an analysis of public records by Bloomberg News show that natural gas producers in the Permian shale basin began to cut production significantly days before power companies cut them off.

As the gas flow deepened, everyone scrambled to ensure sufficient supply, triggering one of the craziest price spikes in history. Power producers were forced to pay top dollar in the spot market for all the gas they could find.

Soon customers will be grappling with the bill and it’s a big bill. The total stands at around $ 11.1 billion for a storm that lasted only five days, according to estimates by BloombergNEF analysts Jade Patterson and Nakul Nair.

The cost of gas for power generation alone was about $ 8.1 billion, or 75 times normal levels. An additional $ 3 billion was spent by utilities providing gas for cooking, heating and homes.

Analysts’ estimate is based on spot prices from major hubs assessed by S&P Global Platts rather than private contracts, so this is likely an upper bound on total cost.

Millions of Texans now face the prospect of paying higher gas prices for years to come as utilities seek to spread the costs over a decade or more. Texas lawmakers set aside $ 10 billion to help natural gas utilities cover their storm costs through low-interest state-guaranteed bonds.

A special legislative session met on Thursday but the agenda did not include any measures to repair the power grid. This week, Gov. Greg Abbott appeared to double his initial assessment that wind and solar were the main culprits of the freeze.

Even though gas failed in its role as a reliable back-up fuel during the freeze, Abbott pushed regulators in a letter to strengthen incentives for fossil and nuclear fuel generators while increasing “reliability costs” for sources. intermittent renewable energy.

“MASSIVE WEALTH TRANSFER”

What Abbott didn’t mention was the huge windfall major industry players realized during the freeze. Natural gas and propane pipeline company Energy Transfer posted its highest quarterly net profit on record, more than three times its previous quarter’s best.

It is “the most massive wealth transfer in Texas history,” said Ron Nirenberg, mayor of San Antonio. “Energy market participants have taken full advantage of the declared disaster, or failed to take appropriate action to stop the sky-high and unreasonable prices.”

Energy Transfer said years of investment have allowed it to keep its pipelines running and sell the stored gas, providing essential supplies when others could not. Its prices were fully negotiated and set by the market, the company said.

At its peak, winter storm Uri left the Texas grid with nearly 50% of the electricity it needed, causing widespread blackouts 500 times worse than those affecting California in the 2020 wildfires. severe low temperatures, power producers underestimated demand, wind turbines froze, and coal and nuclear power plants went offline.

GENERATOR FAILURE

But the biggest point of failure were natural gas-fired generators, according to the Electric Reliability Council of Texas, the state’s electricity grid operator. Most have been attributed to weather-related outages and idling factories.

Some producers have closed their wells as a preventive measure; huge amounts of water are used in hydraulic fracturing and operators feared the cold could freeze wells, pipes and roads.

As cold weather swept through West Texas, the state’s gas production fell some 11 billion cubic feet over nine consecutive days from Feb.9. Importantly, 52% of the volume drop occurred before the board’s first power outage in the early hours of February. 15, according to data compiled by BloombergNEF.

On February 14, the cold spread to the southern United States. Natural gas hit $ 300 per million British thermal units in Texas, about 100 times the normal price and a record $ 600 in Oklahoma.

Traders began to make comparisons with the records set on the Midwestern grid in 1998 and with the California energy crisis that caused widespread blackouts in the early 2000s. It was not until February 15 that the first power cuts were made. electricity of the council came into effect.

Texas generally produces a lot more gas than it can handle. Usually, gas is cheap in Texas and trades every day on the pennies on the dollar.

Electricity providers secure fuel through a mix of physical gas supply contracts and financial contracts such as swaps and hedges.

Gas utilities are more dependent on more volatile spot prices, but as gas production plummeted and suppliers canceled contracts, utilities were losing supplies hourly. This forced them into the spot market, giving sellers the power to charge almost any price they wanted, according to power leaders, who spoke on condition of anonymity.

Executives have expressed dismay that gas producers can shut down wells and sellers can effectively withdraw from contracts without penalty, while power producers have a public duty to keep the lights on – or at least try to do it.

Information for this article was provided by Sergio Chapa and Gerson Freitas Jr. of Bloomberg News (WPNS).


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