Amid Texas freeze, oil producers still shut; natural gas shipments out of state banned

HOUSTON (Reuters) – Texas oil producers and refiners remained shut for a fifth day on Wednesday after several days of blistering cold, and the state’s governor ordered a ban on natural gas shipments out of state to try to speed the restoration of power.

Alvin Williams, 66, checks on his smartphone while taking a shelter at Gallery Furniture store which opened its door and transformed into a warming station after winter weather caused electricity blackouts in Houston, Texas, U.S. February 17, 2021. REUTERS/Go Nakamura

The cold snap, which has killed at least 21 people and knocked out power to millions of people in Texas, is not expected to let up until this weekend. Governor Greg Abbott told natural gas providers in Texas not to ship outside the state until Sunday, with natural gas wells and pipelines frozen shut.

“That will also increase the power that’s going to be produced and sent to homes here in Texas,” Abbott said at a press conference Wednesday.

The ban prompted a response from officials in Mexico, which relies on imports via pipeline from Texas. More than 40% of U.S. natural gas exports come from Texas.

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

The state accounts for roughly one-quarter of U.S. natural gas production, about 27.8 billion cubic feet per day, but it consumes only part of that, shipping the rest to other states or via pipeline to Mexico, according to the U.S. Energy Information Administration.

Texas’ energy sector has been hit hard by the cold, with about 4 million barrels of daily refining capacity shuttered and at least 1 million barrels per day of oil production out as well.

Natural gas output also slumped. At this time a week ago, Texas was producing about 7.9 billion cubic feet per day, but that fell to 1.9 billion on Wednesday, according to preliminary data from Refinitiv Eikon. Natural gas accounts for half of Texas’ power generation.

“At 3:23 this afternoon I received a letter from Governor Abbott requesting our assistance with keeping Texas gas in Texas,” said Christi Craddick, chair of the Texas Railroad Commission, the state’s regulator for oil and gas, at an emergency meeting Wednesday night. “Our staff is currently reviewing the letter.”

U.S. gas pipeline exports to Mexico dropped to 3.8 billion cubic feet per day on Wednesday, down from an average over the past 30 days of 5.7 billion, according to data from Refinitiv, about three-quarters of which comes from Texas.

Mexico’s economy minister, Tatiana Clouthier, said on Wednesday she had contacted the U.S. government’s representative in Mexico, seeking to guarantee supplies of natural gas for Mexico during the cold snap. “By not acting together, the results could be more complicated,” she said on Twitter.

Slideshow ( 2 images )

Overall, daily U.S. natural gas production is down by roughly 19% from the end of last week to 71.9 billion cubic feet per day on Wednesday, according to preliminary Eikon data.

With more snow expected in key oil-and-gas 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 exporting sites at Freeport and Sabine Pass were closed due to weather, according to U.S. Coast Guard Petty Officer Jonathan Lally.

One billion cubic feet of gas can supply about 5 million U.S. homes per day.

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.

Roughly 1 million barrels per day of crude production have been shut, according to Wood Mackenzie analysts, and it could be weeks before production is fully restored.

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

The freeze has also sent Canadian natural gas exports to the United States soaring to levels last seen in 2010, said IHS Markit analyst Ian Archer.

Net Canadian exports have jumped above 7.5 billion cubic feet a day for the last couple of days and Archer estimated they were close to 8 billion cubic feet per day on Wednesday.

“We are seeing just absolutely huge withdrawals and exports to the U.S.,” Archer said.

(Graphic: U.S. natural gas production slumps, )

Source: Read Full Article