Facing questions after 2021 power crisis, Texas natural gas industry opposes new protective measures
Advocates for the Texas natural gas industry have spent much of the 11 weeks since February’s deadly power blackouts downplaying the sector’s culpability in the crisis and working to stop lawmakers from requiring winterization of far-flung wells and pipelines.
But new data suggest failures by natural gas producers and suppliers to keep the commodity flowing might have triggered as much as a fifth of the freeze-related power outages near the peak of the calamity.
What's not up for debate is that statewide production of natural gas — a major source of fuel for electricity generation — slumped dramatically amid the historic winter freeze and prices for it soared.
Production fell by nearly half at one point during the emergency, compared with levels earlier in February, according to IHS Markit, a company that aggregates information about the energy sector. Natural gas spot prices climbed from an average of about $2.80 per million British thermal units at the main West Texas trading hub to a high of $206.19 — a 73-fold increase.
At least 151 people, including 12 in Travis County and three in Williamson County, died statewide for reasons related to the frigid temperatures and others lost limbs to frostbite, as many power plants faltered just when needed most. Property damage from the power outages has been estimated at over $200 billion, while water service to more than 12 million people across the state also was disrupted because pipes froze and burst.
Proponents of the state's natural gas industry — in addition to its regulator, the Texas Railroad Commission — have largely deflected blame for the overall crisis, saying freeze-related outages at power plants exacerbated issues at natural gas production and supply facilities because they rely heavily on electricity to operate and to resolve their own weather-induced problems.
The sector's main trade group, the Texas Oil and Gas Association, has been aiming to blunt protective measures in the Legislature that might include wells and pipelines statewide, along with power plants and related infrastructure, in potential new winterization regulations. A recent report paid for by the trade group concluded that the grid crisis likely "started at power generation units" — not at wellheads or pipelines — and cascaded from there.
The industry's efforts are paying off, with the term "gas well" removed from the latest version of Senate Bill 3, legislation designed to shore up the electricity grid in part by mandating winterization of infrastructure deemed critical to power generation and establishing fines for noncompliance.
But an updated analysis released by the Electric Reliability Council of Texas, the operator of the state's electricity grid, indicates that the difficulty some power plants had in obtaining natural gas played a sizable, even if not primary, part in the crisis.
According to the ERCOT data, about 23% of freeze-related outages or reduced production at gas-fueled generation plants was attributed by generators to "fuel limitation" on the morning of Feb. 16, the period in which the greatest amount of generating capacity was offline. Those outages totaled 4,420 megawatts, enough to power about 885,000 homes and businesses — 20% of the estimated 4.5 million without power at the peak of the emergency.
In addition, estimates from IHS Markit indicate natural gas production in the state had already fallen about 13% by Feb. 13, compared with the daily average during the first week of February — which is before electricity generation on the ERCOT power grid entered its steep slide, according to the U.S. Energy Department's statistical agency, the Energy Information Administration.
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Stephen York, an industry economist with the federal agency, said he thinks the bulk of the declines in natural gas production in Texas resulted from freeze-offs at wellheads or gathering facilities. At least initially, the declines "were mostly unrelated" to electricity generation by power plants, he said — an assertion that calls into question the Texas Oil and Gas Association's conclusion that the outages at power plants were the trigger for them.
Freeze-offs are phenomena that occur when small amounts of water and other liquids that accompany natural gas crystallize and impede gas flow. They are relatively common occurrences, York said, but more so in Texas when temperatures take a dive because of less winterization in the state compared with northern regions of the country.
The Wall Street Journal has reported that some natural gas production and supply facilities also were shut down during the emergency because they were part of a voluntary ERCOT program in which large industrial users are paid to stop using power when demand for electricity risks outstripping generation. According to the Houston Chronicle, however, such contractual outages affected a small portion of the thousands of oil and gas facilities in Texas.
York said the likelihood of freeze-offs at wellheads and related infrastructure can be reduced through winterization measures that don't require electricity from the grid, such as insulation, wind blocks and methanol drips that lower the freezing point of water.
"There have been a number of studies (in the past) that have suggested winterization would have helped (natural gas) production and electric power generation in Texas," York said. "That does tend to back up the idea that winterization would have helped” in February.
Economists with the Federal Reserve Bank of Dallas have estimated the cost of winterizing gas wells at $20,000 to $50,000 each, meaning the price tag to winterize all 85,000 in Texas in one fell swoop could range from about $1.7 billion to $4.25 billion. But limiting the effort to new wells would cost significantly less initially — $85 million to $200 million annually — and "may offer a targeted and effective approach in the long run" because new wells eventually will account for the bulk of production, the Dallas Fed said in a recent report.
Still, the ERCOT data indicate the biggest overall culprit in the grid calamity was the combined impact of "weather related" problems and "equipment issues" at natural gas-fueled power plants — meaning failures ranging from frozen valves to control system malfunctions — not the inability to obtain enough natural gas to keep plants running. Taken together, they accounted for outages totaling 14,653 megawatts on the morning of Feb. 16, or enough to power the equivalent of more than 2.9 million homes and businesses.
Opposed to new mandates
Todd Staples, president of the Texas Oil and Gas Association, said the ongoing effort to enact new regulations designed to safeguard the grid should focus on power plants and directly related grid infrastructure, including some natural gas pipelines if they serve electricity demand, instead of the tens of thousands of wells and other facilities across the state that don't directly do so.
Only about 20% of natural gas production in Texas — the largest producer of the commodity in the United States — goes for electricity generation, according to the trade group, while the rest is used for other purposes or is exported nationally and internationally.
"We want to be part of the solution," Staples said. But "there are many better ways to ensure reliability (of the power grid) for Texans" other than "mandating more requirements at the individual well level."
He also disputed the notion that increased winterization of wells would have made a difference in the February calamity.
“Our producers were winterizing, to a large extent," he said. "They could have encapsulated their wells in a building like it's done in Alaska — but without power you cannot produce gas (and) you cannot transport gas.”
As for the downturn in natural gas production just prior to the grid emergency, Staples pointed to his group's study indicating it wasn't significant enough to have precipitated the calamity.
But some operators of gas-fueled power plants contend the natural gas sector bears plenty of the blame.
Executives of Vistra Corp., the largest owner of generators in Texas, leveled blistering criticism at the sector during a recent conference call with Wall Street analysts for what Vistra described as an "unprecedented failure" amid the emergency.
Vistra CEO Curt Morgan told analysts that suppliers began curtailing his company's contracted natural gas as early as Feb. 12 — well before the grid emergency and the start of rolling electricity blackouts. The calamity cost Vistra about $1.6 billion, according to the company, much of which resulted from sky-high prices for natural gas on the spot market that it said it was forced to buy when its contracted gas didn't come through.
"In a nutshell, the issue stemming from the natural gas system cost us dearly, and there wasn't anything we could do about it while we were in the middle of the event," Morgan said.
He also said Vistra is contemplating legal action against natural gas suppliers that broke contracts.
If the company does go to court over the issue, it will be one of dozens of parties already involved in lawsuits related to the natural gas supply problems during the emergency and the financial fallout stemming from them. Billions of dollars are at stake in suits filed by power plant operators — alleging price gouging, in some cases — as well as by suppliers contending their bills haven't been paid.
Staples, speaking about the supply issues and not the lawsuits, said fuel constraints experienced by generators could have been alleviated had they had contracts in place in advance of the emergency enabling them to access the huge volume of natural gas in storage in Texas if needed. He also noted that, even during the week of the crisis, production in Texas exceeded demand in the state.
“Texas is awash in natural gas," said Staples, who formerly served as Texas agriculture commissioner.
But other observers view the calamity as a textbook example of why stepped-up oversight of the natural gas sector, along with the rest of the power grid, is a necessity.
“If we end up going through this entire process (of crafting new rules to safeguard the grid) and we never require gas wellhead winterization, we are going to end up with power outages again, potential deaths, possibly billions of dollars in damages again and higher utility bills," said Virginia Palacios, executive director of Commission Shift, a group that contends the Texas Railroad Commission is too cozy with the oil and gas industry that it's charged with regulating.
“I think (a lack of requirements for) basic wellhead winterization is going to be the chink in the armor if we don’t get it right," Palacios said.
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