October 7, 2021
Strengthening the reliability of our power grid is one of the top priorities of the Texas oil and natural gas industry. It is a multi-step process that is well underway. As with any event, industry is busy assessing potential operational improvements and deploying the means necessary to ensure expectations for future storms are met. The Texas oil and natural gas community, whose makeup is both the supplier of natural gas and among the state’s largest consumers of electricity, will continue working alongside regulators at the Public Utility Commission (PUC) and Railroad Commission (RRC) to achieve the goals set by the 87th Texas Legislature to ensure Texans never endure the energy challenges faced this past February.
An analysis commissioned by TXOGA in April revealed that power outages, which originated at power generation units, were the principal factor for natural gas production and transportation reductions or shutdowns during Winter Storm Uri. Independently, a report by the Electric Reliability Council of Texas (ERCOT) confirms the causes for lost power generation during the February blackouts, listing power plants freezing up as the primary cause, with fuel limitations – which includes loss of natural gas production – representing only 12% of all of the causes.
A recent report released by Federal Energy Regulatory Commission (FERC) offers preliminary findings as to what happened during the storm and recommendations to prevent such incidents in the future. The report findings point to generation freezing issues as the root cause of natural gas production failure, followed by natural gas fuel supply issues and natural gas and electric reliability interdependency. Over the past several days, the FERC report has gained close attention from the media.
The analysis below, helps to explain the findings of the FERC report and reveal what has received too little scrutiny in most reporting that FERC findings mostly echo information already covered and considered by Texas regulators and legislators and the actions they’ve taken as a result.
Should oil and natural gas operators be required to weatherize?
FERC FINDING: FERC found that freezing issues due to frozen instrumentation were the largest cause of power outages.
The FERC report’s mandatory winterization recommendation mirrors the actions taken by the 87th Legislature to pass mandatory weatherization requirements for equipment “critical” to producing electricity. We agree proper weatherization of essential infrastructure is appropriate and already being implemented. Because the natural gas supply chain is a complex and intricate operation, measures to improve its resiliency through proper weatherization means meticulously targeting only the infrastructure critical to supply during a storm crisis.
This point is validated by ERCOT, and showcases the need for flexibility to order load shed. Transmission and distribution utilities (TDUs) requested to prioritize the most essential natural gas supply systems and not designate all hundreds of thousands of natural gas wells and components as critical. Similarly, the FERC report echoes these recommended revisions to load shedding in order to protect “critical” natural gas infrastructure from power loss. The importance of maintaining power to facilities designated as “critical” is a unifying determination included in all three reports – Enverus, ERCOT and FERC. Mapping the power grid and improving the critical infrastructure identification process are key to determining which upstream assets should avoid load shed and be weatherized. FERC also highlights the effectiveness of industry’s long-standing practice of voluntarily winterizing equipment, which the FERC report recommends and builds upon. There is no greater incentive for investment in weatherization than the risk of weather prohibiting private businesses entities from participating in the market and subsequently losing profit.
What about natural gas fuel limitations?
FERC FINDING: FERC found the second-largest cause of power outages to be natural gas fuel supply issues due to natural gas production declines. Reasons for decline include shut-ins, freezing issues, power outages, mechanical failures and supply decreases at wellheads, and gathering and processing facilities. These are consistent with the issues identified by Enverus.
It is important to note that the FERC report contained a combination of ERCOT, SPP and MISO data. ERCOT’s data confirmed fuel limitations were only 12% of the causation of lack of electricity from electric generators powered with natural gas, thus, while certainly an issue, it is one that is both manageable and not the biggest dilemma with proper planning.
One important item highlighted in the FERC report is the need to “identify reliability risks related to natural gas fuel contracts,” an item TXOGA has called attention to as it pertains to accessibility of the abundant natural gas in storage. The Enverus report and ERCOT data confirm that the decline in natural gas production became significant only after power losses occurred. Texas has almost 550 billion cubic feet of working natural gas storage capacity – more than 40 times the state’s typical total daily usage. Beyond storage capacity, Texas produces more than twice the amount the state needs for daily natural gas usage of all types and five times the amount needed for natural gas-powered electric generation. Natural gas storage was available at the time and is vital to meeting the supply demand during future crises. As such, this supply chain must be given priority for both continued power and weatherization.
Why did natural gas production declines begin before the storm?
FERC FINDING: FERC found the third-largest cause of power outages to be natural gas and electric reliability dependency, namely natural gas production facility loss of power due to weather-related power line outages and firm load shed: 60% of natural gas-fired generating units affected by fuel supply issues had outages, derates, or failures to start by February 14, and 32% had fuel supply issues before and after February 14.
A UT Symposium on natural gas performance during Winter Storm Uri, “2021 Texas Energy System at the Crossroads: Lessons in the Wake of Major Storms”, was summarized by RBN Energy, LLC, and confirms the findings regarding the timing of declines of natural gas production in the Enverus report commissioned by TXOGA, showing loss of power as the biggest factor in production declines:
The key to finding an answer to the freeze-off vs. power loss question is to examine the timing more closely than had previously been done by critics of the TXOGA report. From Wednesday to Friday, a combined loss of 5% was not out of line for normal Permian production fluctuations and would not have been material for ERCOT generators. The first major drop (of ~9%) came on Saturday as the storm began to hit West Texas. Then came Sunday, February 14. Permian production dropped by 31% that day, followed by losses of 20% on Monday and 9% on Tuesday. As noted earlier, the power went off at 1:30 AM Monday morning. So, certainly, the combined 29% loss on Monday and Tuesday was consistent with TXOGA’s findings that power loss to wellheads, processing plants, and pipelines was a dominant cause of the supply decline.
But what about Sunday, the largest one-day loss during the crisis? Here, we run into the longstanding and often-debated mismatch between the standard gas day and the calendar day. The gas day pursuant to standards adopted across the natural gas industry runs from 9:00 AM Central Time to 9:00 AM the following day. In other words, seven and a half hours of the Sunday gas day happened after 1:30 AM Monday when the power went off. Given the additional nearly 20% loss on Monday, it would follow that a large portion of the Sunday gas-day loss actually happened after 1:30 AM Monday.
So the sequence of events finally agreed upon during the symposium was that widespread freeze-offs of wellheads and midstream facilities probably amounted to an aggregate loss of around 20% prior to the power outage, not a catastrophic drop but enough to combine with generating plant freezes, loss of a unit at the South Texas nuclear station, and loss of some wind generation to require rolling blackouts. But then as soon as the blackout occurred, gas supply plummeted — because of the blackout — to make the situation unrecoverable. Thus, the discussions at the symposium really led to an understanding of what happened, and that common view of facts could show what needs to be done.
The good news for all Texans is that the natural gas supply chain, electricity transmitters and producers, regulators and stakeholders are all working collaboratively for reliable and meaningful change and value the continued legislative oversight.
We are deliberatively, with a sense of urgency, making meaningful changes that are resulting in increased reliability. No Texan should have to endure deadly conditions again because the electricity supply chain failed to sufficiently reform. The Texas oil and natural gas industry looks forward to full implementation of SB 3, other legislative directives and evaluation of the FERC report that will strengthen the reliability of our electric grid.