Texas Deep Freeze Hits Energy Sector

(Reuters) — A deep freeze in Texas that started over the weekend continued to wreak havoc on the U.S. energy sector on Tuesday, grounding operations at the Houston Ship channel and curbing output in the nation's largest oil field in the Permian, while several of the biggest oil refineries remained offline.

Historic subzero cold has knocked out about 3.3 million barrels per day of refining capacity, which equals 18% of national capacity, according to Reuters calculations, and industry analysts say crude production could be affected for days or weeks.

Around 5.3 million customers were without power nationwide due to winter storms, with Texas the hardest hit with around 4.3 million customers affected, according to local power companies.

The cold snap sent U.S. oil prices to near 13-month highs, while front-month gas futures jumped to an over three-month high.

In the spot market, next-day power at the ERCOT North hub jumped to a record high of $1,489.75 per megawatt hour (MWh).

TERMINAL CLOSURES

The Houston Ship Channel, a 53-mile (85 km) waterway connecting the busiest U.S. petrochemical port with the Gulf of Mexico, is crucial to U.S. oil and fuel exports as well as shipments of grains and other products.

"A lot of terminals are closed," said the dispatcher of the Houston Pilots Association, which guides vessels in and out of the channel.

J.J. Plunkett, port agent for Houston Pilots, said ship pilots were moving at least five vessels along the Houston Ship Channel on Tuesday.

Whether they will be able to do so through the night will depend on the weather, Plunkett said. Freezing rain expected with another Arctic front may prevent ground transportation within ports and along docks.

"The biggest obstacle is moving people around as most of the highways and bridges are closed... There are a lot of electricity outages in the area, the whole of Galveston is under a blackout. Even we do not have power, but have backup."

In addition to the nation's largest refinery, Motiva Enterprises' 600,000 bpd facilities at Port Arthur, freezing temperatures have shut other refineries in the state owned by Royal Dutch Shell Valero Energy Corp, Exxon Mobil Corp and Total SE.

"We're talking about a major portion of the U.S. Gulf Coast refining capacity currently being offline, in all likelihood, above 4,000,000 barrels a day," said Marc Amons, senior research analyst with Wood Mackenzie.

Cold weather primarily impacts the instrumentation that monitors and operates refinery units.

"The vast majority of their equipment will be inoperable once the weather warms up, so while we don't feel that we're looking at a hurricane-like scenario," it would probably take about a couple weeks for the refineries to return to pre-storm operations, he said.

The cold has also shut natural gas production and pipelines, which refineries use in power generation. Widespread power outages or instability of external power supply can force shutdowns.

"We are hearing about unprecedented power outages in the Permian Basin. Some parts of the basin have been completely without power since last Friday, but in general it seems that we are dealing with intermittent blackouts in different areas," said Artem Abramov, partner at Rystad Energy.

Abramov estimated the impact on Permian supply at anywhere between 500,000 to 1,200,000 bpd over the course of five days, and said most volumes should be "restored very quickly once we are out of this."

 

The Electric Reliability Council of Texas (ERCOT), which operates the power grid in much of Texas, said some 5-minute power prices approached $11,000 per MWh over the past couple of days. That compares an annual average of $26 at the Ercot North hub in 2020.

Oil pipeline operator Enbridge said it has restarted operations on a 585,000 bpd crude oil pipeline that runs from its terminal near Pontiac, Illinois, outside of Chicago, to the largest U.S. oil storage hub in Cushing, Oklahoma. The line was shut on Monday.

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