Winter is bearing down on the energy markets and what was and what may be is being most reflected in the natural gas (NYMEX:NGF14) market. Nat gas hit a six-month high as cold temperatures conspired to lower supply to the lowest level since 2008. The EIA reported that natural gas supply fell 162 bcfs in the latest report. Yet oil and gas are also getting supports from the winter storm that is hitting the country now.
Dow Jones reports that "It isn't just hurricanes and floods that can knock out oil and gas production--in Texas, wintry wind and ice can do the trick." Bitter winds that blew sleet across Texas just before Thanksgiving led to power outages, frozen equipment and icy roads throughout the prolific oil fields of the Permian Basin, including Midland, Texas. Some energy companies are warning that their oil output — and earnings — are being affected.
Reuters reports that "severe winter weather in the western United States has already dented some oil and gas production and could further crimp output in the top crude producing states as temperatures drop this week." In North Dakota, temperatures are expected to drop to -40 degrees Fahrenheit (-40 degrees Celsius) by Saturday, following a three-day winter storm that blanketed the western reaches of the state with up to 8 inches of snow, NOAA forecasters said. Reuters says that portions of western Texas, home to the oil-and-gas rich Permian Basin shale play, will see freezing rain, sleet and snow with ice forming on Thursday night, according to forecasts from the National Oceanic and Atmospheric Administration (NOAA).
The Permian has become the highest yielding U.S. shale oil play, producing some 1.3 million barrels per day (bpd) of oil and 5 billion cubic feet per day of gas, according to U.S. government data. Area producers warned that freezing temperatures and precipitation will cut power, make roads inaccessible, impede access to drilling facilities and cut into production. Much of the equipment that is above ground is exposed to the elements and not housed in protective sheds common in consistently colder places such as North Dakota. So valves and meters that measure the flow of oil and gas are more likely to freeze shut during prolonged cold weather.