Storm Reduces U.S. Oil, Gas, And Electricity Production, Driving up Prices

On Friday, frigid temperatures and strong winds knocked out power and reduced energy output around the United States, driving up heating and electricity costs as Americans prepared for Christmas celebrations.

Winter Storm Elliott delivered subzero temperatures and severe weather advisories to around two-thirds of the United States, with cold and snow expected to persist into the Christmas holiday in certain locations.

More than 1.5 million homes and businesses lost power, oil refineries in Texas halted production of gasoline and diesel due to equipment failures, and heating and electricity costs increased as a result. From North Dakota to Texas, oil and gas production was affected by freeze-ups, reducing supply.

Due to the extreme cold, almost 1.5 million barrels of daily refining capacity along the U.S. Gulf Coast was shut down. The output reductions are not expected to be permanent, but they have caused an increase in gasoline costs.

TotalEnergies, Motiva Enterprises, and Marathon Petroleum (NYSE:MPC) facilities outside of Houston were destroyed. Producing gasoline, diesel, and jet fuel, Exxon Mobil (NYSE:XOM), LyondellBasell, and Valero Energy (NYSE:VLO) operations in Texas were affected by cold weather.

The Cameron LNG plant in Louisiana, which is owned and operated by Sempra Infrastructure, said that weather had hampered its production of liquefied natural gas, but did not provide any specifics. It was stated that crews at the 12 million-tonne-per-year factory were attempting to restore output.

This week, freeze-ins halted oil and gas production in North Dakota's oilfields, reducing output by 300,000 to 350,000 barrels per day, or a third of typical levels. In the Permian oilfield in Texas, the frost caused more gas withdrawals than injections, according to El Paso Natural Gas operator Kinder Morgan Inc. (NYSE:KMI)..

On Friday, U.S. benchmark oil prices rose 2.4% to $79.56, while next-day gas prices in west Texas rose 22% to almost $9 per million British thermal units, the highest level since the state's deep freeze in 2021.

In addition, electricity costs on the Texas system jumped to $3,700 per megawatt hour, pushing generators to add more power to the grid before prices dropped as thermal and solar sources became operational.

New England's wholesale power provider anticipated having enough to meet demand, while elsewhere, high winds caused widespread power outages in the Southeast and Midwest; North Carolina reported more than 187,000 without electricity.

Duke Energy (NYSE:DUK) spokesperson Jeff Brooks posted on Twitter: "Crews are restoring power, but strong winds make repairs difficult at the majority of the 4,600 outage areas."

In response to the weather, heating oil and natural gas futures surged. Heating oil futures in the United States jumped 4.3%, while natural gas futures rose 2.5%.

Friday gas prices at the Algonquin hub in New England increased by 361% to a near 11-month high of $30 mmBtu.

Approximately half of the electricity produced in New England is generated by gas-fired facilities, although on the coldest days, more oil is burned. Friday at noon, according to grid operator New England ISO, 17% of a power company's generation came from oil-fired facilities.

In Texas, Oklahoma, North Dakota, Pennsylvania, and other states, wells froze during the previous four days, reducing gas production by around 6.5 billion cubic feet per day (bcfd) to an estimated nine-month low of 92.4 bcfd on Friday.

This is the worst decline in output since millions of Texans lost power due to a freeze in February 2021.

One billion cubic feet of gas is enough to fuel around five million U.S. households for one day.