DEEP FREEZE CHILLS U.S. ENERGY SECTOR.

Refining capacity takes 18% hit

A deep freeze that hit Texas over the weekend wrought more havoc on the U.S. energy sector on Tuesday, grounding operations at the Houston Ship channel and curbing output in the largest U.S. oil field in the Permian, while several of the biggest oil refineries remained offline.

Historic subzero cold has knocked out about 3.3 million barrels per day of refining capacity, or about 18 per cent of national capacity, according to Reuters calculations. About 500,000 to 1.2 million bpd of crude production has also been affected, and it could be weeks before it is fully restored, industry analysts said.

Around 5.3 million customers were without power nationwide due to winter storms. Texas was hardest hit with around 4.3 million customers affected, according to local power companies.

Refiners have been struggling to deal with the freeze. Exxon Mobil's Beaumont refinery reported a unit upset due to the freeze on Tuesday, while Chevron closed its Pasadena refinery due to the severe cold. Motiva Enterprises said it had to shut several processing units due to a loss of steam due to the cold.

“We're talking about a major portion of the U.S. Gulf Coast refining capacity currently being offline, in all likelihood, above 4,000,000 barrels a day,” said Marc Amons, senior research analyst with Wood Mackenzie.

The cold snap sent U.S. oil prices to near 13-month highs, while front-month gas futures jumped to an over three-month high.

In the spot market, nextday power at the ERCOT North hub jumped to a record high of US$1,489.75 per megawatt hour (MWh).

The Houston Ship Channel, a 85-kilometre waterway connecting the busiest U.S. petrochemical port with the Gulf of Mexico, is crucial to U.S. oil and fuel exports as well as shipments of grains and other products.

“A lot of terminals are closed,” said the dispatcher of the Houston Pilots Association, which guides vessels in and out of the channel.

J.J. Plunkett, port agent for Houston Pilots, said ship pilots were moving at least five vessels along the Houston Ship Channel on Tuesday.

Whether they will be able to do so through the night will depend on the weather, Plunkett said. Freezing rain expected with another Arctic front may prevent ground transportation within ports and along docks.

“The biggest obstacle is moving people around as most of the highways and bridges are closed ... There are a lot of electricity outages in the area, the whole of Galveston is under a blackout. Even we do not have power, but have backup.”

In addition to the nation's largest refinery, Motiva Enterprises' 600,000 bpd facilities at Port Arthur, freezing temperatures have shut other refineries in the state owned by Royal Dutch Shell Valero Energy Corp., Exxon Mobil Corp and Total SE.

Cold weather primarily impacts the instrumentation that monitors and operates refinery units.

“The vast majority of their equipment will be inoperable once the weather warms up, so while we don't feel that we're looking at a hurricane-like scenario,” it would probably take about a couple weeks for the refineries to return, Amons said.

The cold has shut natural gas production and pipelines, which refineries use in power generation. Widespread power outages or instability of external power supply can force shutdowns.

“We are hearing about unprecedented power outages in the Permian Basin. Some parts of the basin have been completely without power since last Friday, but in general it seems that we are dealing with intermittent blackouts in different areas,” said Artem Abramov, partner at Rystad Energy.

Abramov estimated the impact on Permian supply at anywhere between 500,000 to 1,200,000 bpd over the course of five days, and said most volumes should be “restored very quickly once we are out of this.”

Fracking in the Permian Basin, America's busiest shale field, is expected to stay “almost entirely shut down” through the end of this week, Joseph Triepke, founder of Infill Thinking, wrote in a report Tuesday.

“The impact of this weather event in the oilfield was much worse than expected,” Triepke wrote. “We all expected the cold, but the second-order effects were much worse than anyone forecasted.”