Mother Nature to Strike U.S. Energy Sector Again

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Nearly all of the continental U.S. was under some form of winter-weather advisory on Tuesday, after data showed the January cold snap led to record highs in natural gas withdrawals.

Natural gas accounts for about 40% of the electricity on the grid, and it helps to drive the furnaces that heat many homes and buildings. With another bout of winter weather this week, the expected demand surge led to spikes in the market on Tuesday.

Henry Hub, the U.S. benchmark for the price of natural gas, was up 2% in pre-market trading on Tuesday to move in a range around $3.50 per million British thermal units. That followed a 4.1% jump on Monday.

Much of the Pacific Northwest and Northern Plains were under cold-weather advisories. It was 21 degrees below zero Fahrenheit in Bismarck, North Dakota, on Tuesday morning, with highs only in the single digits. That degree of cold is all-but certain to curtail oil and gas production in the shale-rich state.

In January, crude oil production in North Dakota dropped by 70,000 barrels per day (BBL/d) due to the operational challenges from the cold weather.

Another system covers an area stretching from northern Texas into west Michigan. Temperatures in this region should stay in the upper 20s, and while the air is too dry for any major precipitation in Texas, parts of Chicago can expect perhaps a foot of snow.

Both Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) and Phillips 66 (NYSE:PSX) (Houston, Texas) have refineries in north Texas that could be impacted by the inclement weather. There are five refineries in the Midwest and Great Lakes states with a combined capacity of 1 million BBL/d that could be affected.

While there are a few months left before refineries go into maintenance season to switch to the summer blend of gasoline, the nation's refineries, as well as the grid, already have been tested this year.

January began with a string of Alberta Clippers that brought snow and cold to parts of the U.S. New Orleans saw exceptionally rare snow-fall totals of around 10 inches last month.

The cold has impacted the nation's energy sector, with an estimated 50 gigawatts of power plants under threat from the latest round of storms.

Data from IIR Energy show natural gas production was aabout 105 billion cubic feet per day (Bcf/d) on Monday. That's some 3.7 Bcf/d higher than January levels, when winter storms curtailed production.

Production is still about 2.5 Bcf/d lower than this time last year. The cold was also likely behind a power outage that disrupted operations at the export facility for liquefied natural gas (LNG) in Freeport, operated by Freeport LNG (Houston).

This could all lead to tighter market conditions for the remainder of winter. Data published Monday by the Energy Information Administration (EIA), the data arm of the U.S. Department of Energy, showed total natural gas storage levels declined by 321 billion cubic feet over the seven-day period ending January 24, some 70% higher than the five-year average withdrawal for the same week.

The dominance of natural gas in the power sector, and the increasingly high exports of liquefied natural gas (LNG) to the European and Asian economies, already point to strains on domestic supplies. Should the upcoming summer months prove as volatile as the winter, it could prove to be a tight year for U.S. natural gas.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).