Texas energy crisis extends to sixth day, spills over to Mexico

Texas’s energy outages caused by a deep freeze extended to a sixth day on Thursday, with the impact of reduced supplies from the biggest energy-producing state in the United States spilling over to Mexico.

The cold snap, which has killed at least 21 people and knocked out power to more than 4 million people in Texas, is not expected to let up until this weekend. It has halted about one-fifth of the nation’s refining capacity and halted nearly all oil and natural gas production in west Texas.

Oil production could fall more than 4 million barrels per day, representing almost 40% of U.S. production, and U.S. crude exports could average 1.1 million bpd on the week, according to estimates from researcher Kpler, compared with current levels of about 3.8 million bpd.

Texas’s outages also affected power generation in Mexico, with exports of natural gas via pipeline dropping off by about 75% over the last week, according to preliminary Refinitiv Eikon data.

Governor Greg Abbott directed the state’s natural gas providers not to ship outside Texas, but a regulator said it is unlikely that they have the right to interfere with existing contracts to buyers.

“I’m not sure we have authority to mess with that, nor do I really want to,” said Jim Wright, one of three members of the Texas Railroad Commission, the state’s oil and gas regulator.

The ban prompted a response from officials in Mexico, as U.S. gas pipeline exports to Mexico fell to 4.3 billion cubic feet (bcf) per day on Wednesday, down from a 30-day average of 5.7 bcf, according to data from Refinitiv.

The Mexican government called the top U.S. representative in Mexico on Wednesday to press for natural gas supplies as power cuts there have hit millions of residents. The White House said on Thursday it was in discussions with Mexican authorities and Texas officials over Abbott’s directive.

However, Mexican President Andres Manuel Lopez Obrador on Thursday said he understands the Texas governor’s request for natural gas export ban has not yet been approved and that Mexico is making diplomatic efforts so it is not carried out.

Lingering power outages are due to downed lines and not because of a lack of power generation, Abbott said during a press conference on Thursday.

Texas exports natural gas via pipeline to Mexico and via ships carrying liquefied natural gas (LNG) from terminals in Freeport and Corpus Christi. It also supplies numerous regions of the country, including the U.S. Midwest and Northeast.

The state’s electrical grid operator, Electric Reliability Council of Texas (ERCOT), was trying to restore power as thermal generators – those powered by natural gas, coal and other fuels – lost the capability to provide power as valves and pipes froze.

ERCOT said that while there is no additional power cutoffs at this time, a little over 40,000 megawatts of generation remained offline, including 23,500 MW of thermal and the rest wind and solar.

“Energy emergency conditions remain as the grid operator and transmission owners work to restore the remaining customers that are without power,” it said.

Abbott said he has asked the legislature to mandate the winterization of generators in the power system and has called for funding needed to ensure winterization and modernization occurs.

Blackouts could continue through at least Friday, said Rebecca Miller, senior analyst at consultants Wood Mackenzie.

While the storm has moved away, freezing temperatures remain and oil refining might take days, if not weeks, to full resume operations.

“The oil and gas industry is finally getting some power into these fields,” Christi Craddick, chair of the Texas Railroad Commission, said Wednesday night.

Industrial facilities and manufacturing plants are unable to operate without power. Auto companies, including Ford Motor Co, have shut some plants because of a lack of natural gas and power.

U.S. crude futures fell about 1% on profit-taking following days of buying spurred by fears of supply disruptions that sent prices to the highest since Jan. 8, 2020.

Natural gas futures also eased from near a three-month peak as warmer weather was forecast. Next-day prices at Waha hub in the Permian basin in West Texas eased from all-time peak of $209.75 per mmBtu to $77 per mmBtu.

Texas is the nation’s biggest fossil fuel energy producer, but its operators, unlike those in North Dakota or Alaska, are not used to frigid temperatures.

The state produces almost a quarter of U.S. natural gas production and consumes about 15%. Most of the gas it ships domestically goes to neighboring Oklahoma and Louisiana.

LNG plants in Texas – Cheniere Energy Inc’s Corpus Christi and Freeport LNG’s Freeport – were basically taking no gas from the Texas grid Thursday morning, according to preliminary data from Refinitiv.

The Houston Ship Channel, a key export waterway, had reopened on Thursday, but there was hardly any vessel traffic. With temperatures expected to drop overnight, the port may need to be shut again, said J.J. Plunkett, chief operating officer for Houston Pilots.

“The hydrocarbon water lines are frozen and the cargo cannot be loaded,” he said. “This time of the year, we generally have 60 ships in and out the channel; last night we had only nine.”

Next-day power for Thursday at the ERCOT North hub, which includes the cities of Dallas and Fort Worth, were near a record high of $8,800 per MWh hit the previous day. Prices were below $50 per MWh before the cold blast.