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February 18, 2021 10:30 AM, EST

Texas’ Gas-Export Clampdown Shocks Market as Blackouts Continue

American and Texas flags stand in front of the Chevron Pasadena Refinery in Texas. (Sharon Steinmann/Bloomberg News)American and Texas flags stand in front of the Chevron Pasadena Refinery in Texas. (Sharon Steinmann/Bloomberg News)

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Texas is restricting the flow of natural gas across state lines in an extraordinary move that some are calling a violation of the U.S. Constitution’s commerce clause.

Texas Gov. Greg Abbott on Feb. 17 told a media briefing that he was banning gas from leaving the state through Feb. 21 to ensure in-state power generators had ample supplies. But a copy of Abbott’s order seen by Bloomberg showed he’s requiring Texas gas be offered for sale in-state before being shipped elsewhere.

Under the Constitution’s so-called commerce clause, state governments are prohibited from interfering in interstate trade. Abbott said a disaster declaration he issued on Feb. 12 gave him latitude to impose such restrictions.

Texas Gov. Greg Abbott.

Abbott

Abbott said he was forced to act as millions of Texans remain without power. Data published early on Feb. 18 from state grid operator Ercot showed demand above 50 gigawatts for the first time since Feb. 15, signaling fewer blackouts are needed to keep the system stable. Still, the timeline to a full restoration of power is unclear.

“I hereby mandate that all sourced natural gas be made available for sale to local power generation opportunities before leaving the state of Texas, effective through Feb. 21, 2021,” Abbott said in a letter to the Texas Railroad Commission, the state’s top energy regulator. “I ask that you immediately take all reasonable and necessary steps to ensure that this mandate is carried out.

‘Maximum Withdrawal’

Abbott’s announcement caught some gas traders flatfooted and sowed confusion in a market already dealing with huge upheaval. One West Coast-based trader said he lost $1 million within minutes. Without being able to read the order, others hurriedly sought answers: Can gas still be exported to Mexico? Is LNG affected?

“This is an abuse of the Texas Disaster Act,” said Jared Woodfill, a prominent Republican attorney who repeatedly challenged Abbott over coronavirus restrictions in 2020. “It’s amazing that there are no limits in Abbott’s mind to what his authority is under the Texas Disaster Act. He’ll take as much power as the courts and the Legislature will let him have.”

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Abbott’s office didn’t respond to a request for comment. The railroad commission’s staff is reviewing the governor’s order, Chairman Christi Craddick said during an emergency meeting of the three-person panel held the night of Feb. 17. The commission agreed by a 3-0 vote to extend its own Feb. 12 emergency order aimed at husbanding fuel supplies by four days to Feb. 23.

The crumbling of the state’s gas supplies as Arctic temperatures took hold at the start of the week has been one of the driving factors behind the cascade of outages. Abbott said 19,800 megawatts of gas-fired generation remained offline in Texas as of late afternoon Feb. 17.

The calamity unfolding across Texas is somewhat reminiscent of the California power crisis of 2000-2001 when energy suppliers withheld and redirected electricity and gas out of state even as it faced shortfalls, prompting lawsuits. And yet again, even as Californians endured rolling blackouts amid an extreme heat wave last year, energy suppliers were exporting power to neighboring states. The state’s grid operator later blamed market-design flaws.

Dan Woodfin, an executive at Ercot, said in an interview that a lack of gas supply is one of the reasons why it’s having trouble getting power plants back online.

Fossil Fuels

One railroad commissioner took the panel’s emergency meeting as an opportunity to slam windmills and solar arrays that have become a bigger and bigger part of Texas’s energy mix.

“The take away from this storm shouldn’t be the future of fossil fuels but rather the danger of subsidizing and mandating unreliable, intermittent resources,” Commissioner Wayne Christian said.

The state’s gas stockpiles are undergoing “maximum withdrawal,” Craddick said at a Feb. 17 media briefing with the governor and other state officials. She added that some gas plants in South and West Texas are resuming operation amid a thaw.

Top State

Texas produces more gas than any other state, with output at about 23 billion cubic feet a day before the deep freeze, BloombergNEF data show. That’s about a quarter of total production from the Lower 48 states. Its two liquefied natural gas export terminals consumed about 4 billion cubic feet a day of gas before the polar blast.

Abbott asked the Freeport LNG export terminal earlier in the week to dial back its operations. Freeport said it was shutting down two LNG production units in response.

RELATED: Oil Production Slumps by Record 40% as Permian Freezes

Texas also exports gas by pipeline to Mexico. Gas is flowing again via the Nueva Era conduit between the two nations after the extreme cold interrupted its operation earlier in the week, according to one of the pipeline’s owners.

Abbott also said Feb. 17 he and other state governors had expressed concern on a conference call with President Joe Biden about the severe spikes in natural gas prices amid the crisis. Spot prices in neighboring Oklahoma rocketed to over $1,000 per million British thermal units Feb. 17, increasing more than 100-fold from a week earlier.

Joe Carroll, Javier Blas and Jennifer A. Dlouhy were the primary contributors to this report.

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