Deep freeze: US oil and gas production collapsed

MOSCOW, February 20 – RIA Novosti, Natalia Dembinskaya. Due to the abnormal cold weather, oil wells in the United States are closed, the equipment of refineries and gas processing plants is out of order, storage facilities are empty. All this against the backdrop of the shale production crisis. At the same time, frosts forced Europe to actively purchase Russian fuel – deliveries to the EU are breaking records. On the situation overseas and on the global hydrocarbon market – in the material of RIA Novosti.

Record collapse

The Midwest and South of the United States are freezing, especially Texas. According to Bloomberg, at the largest oil field in the Permian Basin, production fell by 65 percent. Frost – 18 degrees. This has not happened since 1989. Wells are closed, equipment breaks down.

Port Arthur's Total continues to operate at minimum capacity, with Permian Basin cutting production by a million barrels per day. Refineries have stopped, in particular in Texas – refineries of Motiva and Exxon Mobil corporations.

“The losses are substantial,” said Gary Ross, a spokesman for the Black Gold Investors hedge fund. Oil production in the country collapsed by almost a third. Indicator before frost – 11 million barrels per day.

The Arctic cold also hit gas processing plants, depriving them of raw materials.

“A deep freeze paralyzed US LNG exports. Deliveries fell to a four-month low. Arctic air, which swept through most of the country and descended south to the Gulf Coast, literally froze gas wells and pipelines, which led to massive power outages in Texas,” states Bloomberg.

According to the US Department of Energy, gas production in the south-central region fell by 178 million cubic meters per day. According to the agency's estimates, about 30% of local production capacities are idle and almost seven percent across the country.

In response to strong domestic demand, suppliers are emptying storage. Natural gas production will not recover in the near future, Energy GPS analysts conclude.

Energy collapse

Power outages affected 14 states. As of February 16, more than 230 thousand people were left without electricity in Oregon, almost 145 thousand in Kentucky, 115 thousand in Louisiana, and 100 thousand in West Virginia. The most difficult situation in Texas.

Analysts predicted “serious power outages” there. But in the end, the state was covered by a full-scale energy crisis.

On February 12, the local oil and gas regulator issued an emergency order prioritizing supplies for gas-fired power plants in Texas to meet public electricity needs in persistent freezing temperatures. It did not help: more than four million people lost electricity.

Shale crisis

The pandemic has hit the U.S. oil and gas industry hard. In 2020, almost 150 oil shale producers went bankrupt. The number of gas and drilling rigs has been steadily declining, companies have suspended operations. Most of the players were unable to survive the epidemic. Demand for energy resources collapsed, oil quotes collapsed.

First of all, those who suffered from problems arose before the covid: they went into debt in the face of an acute lack of investment. Since 2018, Wall Street has lost interest in shale companies, judging that there is practically no profit there, most projects are deeply unprofitable.

And last year, according to the International Energy Agency (IEA), investments fell by more than half – to $ 45 billion.

The Energy Information Administration (EIA) of the US Department of Energy believes that shale oil production in March will drop to 7.5 million barrels per day. Negative dynamics is observed in six of the seven oil-bearing regions – the Andarko, Bakken, Niobrara, Eagle Ford, Berman, Hainesville, Appalachian formations.

According to Fitch's January estimates, the shale industry will not be able to return to pre-crisis levels for another two to three years – producers are concerned with optimizing costs and return on investment, rather than increasing production.

Europe bought gas

Europe is also facing a gas shortage, where underground storage facilities are emptying due to the cold winter. Frosts forced France to urgently buy Russian fuel. According to Gazprom's data, since the beginning of the year, exports to this country have increased by almost one and a half times. Other European countries did the same. Germany in the first ten days of February purchased Russian gas almost 50 percent more than in the same period of 2020.

Since January 1, Gazprom's export to non-CIS countries has grown by 36.5 percent to 27.5 billion cubic meters. Purchases increased by record Italy (plus 221.5 percent), Turkey (20.8 percent), the Netherlands (21.2 percent) and Poland (89.9 percent).

Meanwhile, the Americans continue to put pressure on the EU via Nord Stream 2. According to The Wall Street Journal, representatives of Berlin and Washington have started negotiations on the gas pipeline. According to informed sources, Washington is ready to lift a significant part of indirect sanctions against European companies participating in the project if Germany fulfills a number of conditions. One of the main ones is the creation of a mechanism to stop the operation of the gas pipeline in the event of a reduction in transit through Ukraine.

The Bundestag has already called this idea unacceptable: if Ukraine does not pay the bills, the Europeans may lose Russian gas. And the Germans do not want their energy security to depend on Kiev's ability to pay.

Author: wedocount

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