Crisis In Texas Highlights The Importance Of Fossil Fuels

February 16, 2021 11:30 AM
With over 5 million people without power and lives at risk, the crisis shows the need for energy in any form
Renewables are proving that they’re far from reliable in extreme conditions
Texas Public Policy Foundation thanked “affordable and reliable” fossil fuels for keeping Texans warm
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The Phil Flynn Energy Report 

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Rolling blackouts! Frozen wind turbines, shutdown of refineries, and environmentalists are pointing fingers at the oil and gas industry and the oil and gas industry are pointing fingers right back at them. Well, whoever’s to blame, the power situation in Texas, as well as in 13 other states, is a major crisis. With over 5 million people without power and lives at risk, it shows the need for energy in any form.

To meet the needs of the people of the U.S. and to keep them healthy and safe, we need a diversified energy vision. That includes oil and gas, as well as wind and solar. Yet, it’s natural gas that’s proving to be the most reliable during this crisis which should serve as a warning sign to those who oppose fracking or are in favor of banning natural gas power in their cities. That decision may put people’s lives at stake in situations like these. 

While what we’re seeing is an extreme example, it’s one that will be repeated unless we take seriously the reliability of not only our power grid, but the need for oil and gas and more pipelines. If we aren’t prepared to handle this cold, what will happen when we start producing millions of electric cars? 

Renewables are proving that they’re far from reliable in extreme conditions. While a cold snap of this magnitude is a once-in-30-year event, we know at some point it’ll happen again. Lives and businesses are at risk, as well as the credibility of our economy. As for oil and gas prices, this event solidifies the bullishness that we’ve been predicting for some time. While we may see a pullback when the cold goes away, the reality is that this cold snap pulls back the veil and shows that our energy sector will likely face severe challenges and sharply higher prices in the future.

The cold snap is having a big economic impact and many businesses must shut down. I heard a report that the Texas RR Commission, the agency that regulates natural gas usage, has told milk processing plants in Littlefield, Texas to cut back or completely discontinue the use of natural gas because of the record cold across the whole state. I’m not 100% sure on the math, but the net loss to dairy farmers who rely on their milk being processed could be up to $600,000 per day, depending on their size, if they’re forced to dump their milk.

Zerohedge gives a great summary of where we’re at. Here’s a complete list of things as they stand:

• Weather Channel warns of “dangerous” cold temperatures. 
• Southwest Power Pool says 17 states limiting energy usage. 
• 3.368 million Texans without power. 
• Texas Gov. Greg Abbott calls up Texas Army National Guard. 
• Oncor Electric Delivery continues to warn about extended “controlled outages.”  
• Texas Gov. Greg Abbott states power grid not compromised. 
• Power crisis hits Texas and 13 other states. 
• Southwest Power Pool declares energy emergency alert level 3. 
• Houston Mayor Sylvester Turner warns of more blackouts...suspends air travel in Houston.
• ERCOT wholesale electricity prices plunged from cap of $9k per megawatt-hour to around $2.5k
• Oncor Electric Delivery extends rolling blackouts 
• 2.7 million Texans without power. 
• ERCOT wholesale electricity prices exceed $9k per megawatt-hour.

The Biden administration has declared an emergency in Texas and the Dallas Morning News reports that Sen. John Cornyn set his eye on President Joe Biden’s administration, calling out Biden’s interior secretary nominee Deb Haaland, who opposes fracking. “What are her plans for rolling blackouts during cold weather?” Cornyn asked in a tweet.

The Dallas Morning News reported that the conservative Texas Public Policy Foundation thanked “affordable and reliable” fossil fuels for keeping Texans warm, in a press release. “This week, as the state and nation are blanketed in ice, we can expect most of our wind turbines to be still and solar panels to produce little to no electricity,” communications manager Katie Chihuahua said. “What’s warming Texans and keeping them alive in this deadly winter blast? Fossil fuels, particularly natural gas.”

Canada is taking advantage of the Biden Administration's desire to slow down fracking. Reuters reports the following:

Canadian natural gas producers are bouncing back faster from the COVID-19 pandemic than battered U.S. shale firms, putting them in a position to boost natural gas exports to the United States for the first time in five years. 

The opportunity for Canadian firms to take a piece of the market back from U.S. rivals reverses one of the dominant energy trends of the last decade, where U.S. shale drillers unleashed a flood of cheap plentiful gas - largely a byproduct of crude oil drilling - and pushed western Canadian producers out of their only export market. 

Canadian drilling is picking up swiftly, spurred by better pipeline access and because U.S. producers have cut back crude output, and with it, the associated gas produced with that oil. Canada’s production is forecast to keep rising as coal-fired plants are retired and with the expected start-up of its first liquefied natural gas plant.

Regarding Mexico’s take on foreign energy, Bloomberg reports: 

If President Andres Manuel Lopez Obrador were looking for ammunition in his quest to cut Mexico’s reliance on foreign energy, it would be hard to top the electricity blackouts affecting the north of the country. Mexico reported 4.77 million homes and businesses losing power Monday after imports of natural gas from the U.S. were curbed, knocking power stations offline.

The disruption is a spillover of the worst electricity crisis in recent history in the U.S. where freakishly cold weather has cut oil and gas output. Mexico has restored power to 65% of users, state utility CFE said in its latest update. But the company did not miss the opportunity to make a political point. The disruption “is why Mexico must seek autonomy,” Miguel Reyes, an official at CFE, said in a statement.

AMLO, as the president is widely known, wants to strengthen CFE’s grip on Mexico’s power system and is seeking to pass a bill in Congress that would give the utility priority over private companies in providing electricity. In his morning press conference on Monday, he said the bill did not contravene Mexico’s USMCA trade deal with the U.S. and Canada, a response to recent criticism from the business community on both sides of the border. Mexico’s antitrust watchdog has said the bill will hurt competition.

AMLO initially said 400,000 users in Mexico were affected by blackouts. A representative from CFE said the president’s information may have been preliminary or incomplete.

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.