When the Texas power grid was on the brink of collapse and its operator plunged thousands into darkness, it didn’t make an exception for the oil and gas field.
Power was, unsurprisingly, diverted to hospitals and nursing homes. Ercot, as the grid manager is known, was staving off utter catastrophe, its chief executive later said.
But leaving shale fields like the Permian Basin dark had an unintended consequence. Producers who depend on electricity to power their operations were left with no way to pump natural gas. And that gas was needed more than ever to generate electricity.
As one executive described: It was like a death spiral.
The result was a vicious cycle that serves as a painful lesson to any power grid operator and utility company dealing with rolling outages during extreme weather.
In the Permian, most drillers target more valuable crude, with gas typically considered an unwanted byproduct. That wasn’t the case over days of forced power outages as nearly every source of fuel faltered in the unprecedented cold that slammed Texas.
Even with its explorers focusing on crude, the state is the country’s biggest gas producer, and the fuel makes up just over half of the sources of its power generation mix.
A crucial part of the natural gas system was knocked out by the power outages: compressor stations that help keep gas flowing through pipelines.
As Ercot started asking utilities to prompt big customers to reduce consumption Sunday evening, those stations went down and the pressure across multiple gas pipelines started to drop, ultimately tripping some utilities off line because of lack of fuel.
That, in turn, led some areas of the Eagle Ford shale and the Permian to simply turn off gas production completely.
The situation got much worse in the early hours of Monday as demand continued to climb. Ercot simply didn’t have the power, and millions of homes fell into darkness.
Ercot executives have said the utilities ultimately determine which circuits to turn off during a rotating outage. The grid operator didn’t have information on power being cut to gas compressor stations, a spokeswoman said in an email.
Already, companies including Marathon Oil Corp. and Devon Energy Corp. have begun using restored power from local grids or generators to restart output, according to people familiar with the matter.
It’s not yet clear how long it will take to restore all the lost oil and gas supply, but oil traders and executives have said they hope most of the production lost will return within days as temperatures rise and power becomes available.
— With assistance by Sheela Tobben, and David Wethe – Bloomberg
