Mass Blackouts as Texas Energy Grid Fails
Millions are left without power this week after a record-setting deep freeze swept across much of the nation. Sub-zero temperatures are causing blackouts across Texas and the southern states. The Texas governor is calling to investigate the states’ electric grid operator. Texas’ energy infrastructure was not built for weather this bad with single digit temperatures. The state’s two largest sources of energy, natural gas and nonhydroelectric renewables, such as wind turbines and solar power, were all severely impacted by the winter storm. Some critics blamed the power outages on green energy failures but wind and solar only generate about 21 percent of the state’s electrical power and wind turbines function properly in the Arctic. Natural gas powers half the states electrical generation but in the winter, it is more difficult to get natural gas supplies because they are more in demand for home heating. Texas is the largest energy producer and consumer in the United States and is the only state to use its own power grid which frees it from federal regulations including regulations that could have required it to be better prepared for extreme weather.
Natural gas pricing plays a key role in electricity power pricing due to the increasing reliance on natural gas fired generators as nuclear, coal, and oil generation is retired and mothballed. As the marginal unit of generation, gas prices are directly correlated to power pricing (more so in some regions such as NYC vs. others such as parts of PJM). We keep an eye on natural gas market fundamentals in order to provide insights into forward power pricing for our clients. Gas production has grown and surpassed any speculation that production would not be able to keep up with demand due to LNG and Mexican exports.