OPINION: As freezing temperatures engulfed the US’s largest energy-producing state last week, it became clear that Texas truly does things bigger, but not necessarily better.
Multiple links in the state’s energy supply chain broke as Winter Storm Uri's bitter cold blanketed Texas, knocking out power to more than 4 million people, shutting in oil production by more than 4 million barrels per day and disrupting one-fifth of the nation’s refining capacity.
All forms of energy were impacted. The catastrophic loss of life, homes and businesses revealed the danger of relying too much on one form of energy.
Natural gas is the largest energy source in Texas, accounting for 40% of the state’s energy. Power suppliers found themselves in an unfortunate loop. Electricity is needed to run the gas compressors, but the cold weather and lack of natural gas cratered the electric systems.
The International Energy Agency put it most simply: Texas had a power shortage because it had a gas shortage.
The gas shortage was in part due to “Permian producers and midstream companies’ willingness to take the risk of potential water and liquid hydrocarbon freeze-offs, as the likelihood of such events was viewed as very low or negligible,” said Artem Abramov, head of shale research for Rystad Energy.
It is an understandable risk to take most years. Texas’ relatively mild winters more than make up for its summertime heat waves and droughts.
However, the increasing intensity and frequency of extreme weather events like Uri are quickly becoming the “new normal”.
Scientific studies have for years warned that, due to human-induced climate change, extreme weather events are likely to become more frequent or more intense.
Uri joins the growing list of extreme Texas storms that includes Hurricanes Harvey, Ike and, most recently, Laura. These storms wiped away what was normal, resetting the definition of acceptable risk.
While Winter Storm Uri may have been unpreventable, the resulting power outage was not. After a similarly devastating winter storm struck the state in 2011, a federal analysis found that energy producers’ procedures for winterising their equipment were in many cases “either inadequate or were not adequately followed”.
The analysis identified several ways to winterise a gas well, along with the estimated cost to do so.
To winterise 50,000 wells — a little less than half the total number of natural gas wells active in Texas today — was estimated in 2011 to cost about $1.75 billion and would certainly be higher today due to inflation.
By comparison, the Texas oil and natural gas industry paid $13.9 billion in taxes and royalties in 2020, according to the Texas Oil & Gas Association.
Moving forward, what measures will the links in the energy supply chain put in place to ensure that the impact of the next extreme weather event is not as damaging to lives and infrastructure?
US President Joe Biden’s plan to "build back better" includes more than $2 trillion in funding for transportation and utility infrastructure improvements.
US oil and gas industry players — particularly those operating along the Gulf of Mexico coast — should take a page out of Biden’s playbook and invest in infrastructure improvements to ensure that natural gas — along with wind, nuclear and coal — can carry the load when called to do so in future “new normal” weather events.
(This is an Upstream opinion article.)