A rare cold snap from the Arctic has swept through the United States, with storm warnings sounding in several states, even as far south as areas that have been spared in the past during the season, with Texas among the hardest hit.
Texas is getting its biggest cold snap since 1989, said Dan Pydynowski, a meteorologist with AccuWeather Inc.
The name Texas has long been a major player in the energy market, and traders are sensitive to the place name. Keep in mind that Texas is a major producer of shale oil and gas in the U.S., with production in the region accounting for 41 percent of total U.S. Crude Oil production and 23 percent of natural gas production.
With the cold weather, the Texas continent’s energy production supply could take a hit.
The once-in-a-century cold snap, the impact on the Texas oil and gas industry geometry?
Foreign media reported that most natural gas processing plants in Texas are closed due to the freezing of natural gas transported by pipelines as a result of the severe cold weather. Texas facilities operated by pipeline companies DCP Midstream LP and Targa Resources Corp. reportedly shut down last Thursday due to the cold, while Enbridge Inc. also said it is limiting the transportation of natural gas by pipeline from Texas to New Jersey.
Natural gas production in the central U.S. was down 35 percent from its 30-day average, according to Friday’s data.
At the same Time, severe cold weather has spurred demand for natural gas use, and the market has seen a surge in demand for the heating fuel.
The severe imbalance between supply and demand has pushed up natural gas and electricity prices, as natural gas is the primary fuel used in Texas power plants. The state’s grid operator expects electricity demand to surge to record levels this year as people increase their use of heaters.
Average spot electricity prices in Texas rose more than 2,400 percent on Saturday morning to more than $4,200 per megawatt-hour; prices in some areas have exceeded $5,000 per megawatt-hour, such as an average electricity supply price of $5,475.95 per megawatt-hour in the West Texas hub, the highest since 2010, according to data compiled by Outside Media.
Other states have also taken a hit, with gas prices in Oklahoma rising more than 4,000 percent in two days over the weekend, according to foreign media reports. It closed at $377.13 on Friday, but opened at less than $4 at the beginning of last week.
In addition to natural gas, U.S. crude oil supplies are also estimated to be affected.
Crude oil production in the Permian Basin, the largest shale oil producer in the U.S., is slowing and some wells have even shut down. Traders expect that as much as 500,000 barrels per day of crude oil production in Texas will be affected by well closures, road transportation disruptions and power outages.
Of course, the reality could be worse. Reports indicate that the cold weather has reduced oil production in the U.S. Permian Basin by 1 million barrels per day.
Originally, as oil prices rose to a 13-month high, many oil companies were rushing to resume production in an attempt to make up for losses under the outbreak. Data released by Baker Hughes on Saturday showed that U.S. drilling companies increased the number of oil and natural gas wells drilled through the week of Feb. 12, the 12th consecutive week of increases.
However the storm has forced many crude oil companies to shut down again. If you want to know the impact of this cold snap on U.S. oil and gas production and supply, you need to stay tuned to the data released by EIA this week.
For now, Texas’ top energy regulator has taken emergency measures to ensure that citizen residences, hospitals, utilities and others have priority access to natural gas for combustion. However, Texas Railroad Commission staff warned that “the availability of energy resources will be severely impacted” in the coming days.
Andy Weissman, CEO of energy research firm EBW Analytics Group, said.
“The conditions in Texas are the most extreme they have ever been. If this record cold snap causes natural gas production disruptions to become commonplace, a dangerous scenario could emerge.”
The biggest uncertainty in front of oil market traders is how long this severe cold weather will last.
Marc Chenard, senior branch forecaster at the U.S. Weather Prediction Center, said.
“It’s no longer a question of how cold it is, it’s a question of how long this weather is going to last, and (we’re expected to) endure it for about another week. That’s because there’s another similar weather system coming.”
The U.S. weather service warned that the severe weather brought by the winter storm from last weekend will continue into this week, with widespread icing and up to 30 centimeters of snow possible in parts of the southern plains of the U.S. from 15 to 16 local time, with the heaviest snowfall possible in the area where Oklahoma meets Texas.
The governor of Texas stated.
“Every part of Texas will face freezing conditions in the coming days, and I urge all Texans to remain vigilant for the extreme severe weather to come.”
Market Commentary: This cold snap could also be the “perfect storm” for higher oil prices
Foreign media analyst Javier Blas warned commodities traders over the weekend that “the Permian Basin is suffering from extreme cold temperatures that could freeze oil and gas pipelines, and liquefied natural gas could condense, clogging them.”
On Monday, international oil prices jumped higher on concerns about disruptions in U.S. oil and gas supplies from Texas.
Zero Hedge analysis pointed out that for crude oil, it was a “perfect storm” for a sudden surge.
Currently, there is a spot premium in the crude oil futures market, with the price of Brent crude for April delivery being $2.70 per barrel higher than the price of crude for November delivery.
The spot premium typically occurs when traders expect demand to outstrip supply, when it is expected that crude oil inventories may be further reduced.
Kemp concludes.
“If this expectation proves to be correct, then Brent crude oil prices could rise further. Both higher crude oil prices and a widening spot premium signal the need for oil companies to increase production for the rest of the year.”
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