Rolling Blackouts Texas Updates Energy Markets as Big Freeze

Rolling Blackouts Texas Updates Energy Markets as Big Freeze

The arctic freeze gripping the central U.S. has triggered rolling blackouts in Texas and is ratcheting up pressure on energy prices already trading at unprecedented levels.

In Houston, the city’s main utility said that most customers there would be impacted, with outages possibly lasting more than an hour. The operator of the state’s power grid ordered transmission companies to reduce the strain on the system as people crank up heaters. Outages will be implemented for residential neighborhoods and small businesses for up to 45 minutes at a time. Large industrial customers earlier had power shut off under pre-agreed emergency plans.

“Energy conservation is critical,” the grid operator, the Electric Reliability Council of Texas, said Monday in a message posted to its Twitter account.

 “We urge Texans to put safety first during this time. Traffic lights and other infrastructure may be temporarily without power.”

About 800 daily records for cold temperatures have been set in the past week as Arctic air pushes all the way to the Gulf of Mexico, sending gyrations through energy markets.

Winter storm warnings, advisories and watches stretch from New Mexico to Maine, with temperatures in Fargo, North Dakota, dropping to about minus 18 Fahrenheit (minus 28 degrees Celsius) early Monday. “It’s an amazingly busy watch and warning map,” said Bob Oravec, senior branch forecaster with the U.S. Weather Prediction Center.

LNG exports from the U.S. also plummeted after the freeze shut ports and wells, and oil production also took a hit, with traders estimating a few hundred thousand barrels a day of output in Texas had likely been impacted. West Texas Intermediate futures rose by as much as 2.5%.

Earlier, spot electricity prices in Texas’ West hub surpassed the grid’s cap of $9,000 per megawatt hour, a 3,466% increase from Friday, according to data compiled by Bloomberg. 

While there could be some snow showers and ice in New York and Boston, the bulk of the accumulation will be in upstate New York and interior New England Monday to Tuesday.

The storms will largely miss major cities along the East Coast, Oravec said.

President Joe Biden declared a state of emergency, mobilizing federal assistance to aid local response efforts.

Frigid temperatures and a parade of storms in the U.S. follow other instances of extreme winter weather this year that have snarled ports and upended energy markets in Asia and Europe. Texas, which isn’t accustomed to winter’s full fury, is getting a big taste. 

In Houston, there are long lines to refill household propane canisters and firewood is selling out. The city may pick up as much as 2 inches (5 centimeters) of snow overnight, along with ice and sleet, the National Weather Service said. It will get hit by another storm bringing ice and freezing rain Wednesday.

“It is going to be a cold week,” said David Roth, a senior branch forecaster at the U.S. Weather Prediction Center. “The southern plains are in a cold pattern and it is going to take a while for them to break out of it.”

The Dallas-Fort Worth area could get from 4 to 6 inches (10 to 15 centimeters) of snow overnight. More snow could follow Wednesday. 

The extra demand from consumers in response to the cold appears to have caught out many in the regional U.S. energy market, and chaos has reigned in the past few days.

Ercot is expecting power demand to hit an all-time high on Monday and Tuesday, breaking a record set during a summer heat wave in 2019. “We would expect to be in emergency operations tomorrow through at least Tuesday morning,” said Dan Woodfin, a senior director at Ercot.

One hub in Cheyenne, Wyoming, saw prices as high as $350 per million British thermal unit, according to traders who asked not to be identified because the information isn’t public. For comparison, a week earlier, the fuel was fetching low-single digits in both locations.

In the natural gas market, spot prices in some areas have also spiked to extreme levels. Prices in Oklahoma surged by more than 4,000% since Wednesday.