If you’re reading this, it means you’ve got access to power and internet. Count yourself among the fortunate today. Rolling blackouts and brownouts across the middle of the country and in Texas, have disrupted businesses and lives. It’s been particularly brutal in the Lone Star State. Electricity and natural gas are commodities that are so basic to our way of living that it’s easy to take for granted the efforts designed to make them reliable, available, and affordable. But, boy, does it make things difficult when they don’t show up as anticipated. In today’s blog, we discuss the factors behind the supply disruptions that are wreaking havoc in these commodity markets.
In Monday’s blog, East is East, West is West, we discussed the mayhem that unfolded in the physical gas market in trading for the weekend (and in weekend trading) as a massive spike in demand and a supply contraction (both in terms of production and interregional flows) created localized supply shortages and resulted in record, triple-digit gas prices across the Midcontinent and West. The exorbitant price premiums prompted non-essential gas demand to shut off, including LNG feedgas deliveries. [As noted in our LNG Voyager report, Texas Governor Greg Abbott reportedly asked the Freeport LNG terminal to reduce its feedgas intake. Pipeline flow data as of yesterday indicated both Freeport and Cheniere Energy’s Corpus Christi facility were already receiving less gas than usual. Cameron and Cheniere’s Sabine Pass facility in Louisiana also were seeing declines as weather conditions have been disrupting pipeline flows and terminal and marine operations. Piloting services have been intermittent all along the Gulf Coast due to fog and the hard freeze.] The chaos spilled over into trading on ICE Tuesday morning, when regular trading resumed for next-day gas and cash trades left Friday’s record prices in the dust — cash trading opened just under $1,000/MMBtu at some Midcontinent pricing locations and the NGI index for Oklahoma Gas Transmission (OGT) posted at $945/MMBtu. Prices were so out of whack that the Intercontinental Exchange (ICE) trading platform had to increase the maximum allowable price at some U.S. physical gas trading hubs, which just speaks to the level of pandemonium still gripping the physical gas market.
Just how unusual is Winter Storm Uri? Exhibit A: the photo below of a cross-country skier gliding through a residential area in Austin, TX, yesterday.
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