Oil and Gas Lawyer Blog
A great article appears in the March Section Report of the Oil, Gas and Energy Resources Law section report, by Jacqueline Weaver, Professor Emeritus, University of Houston Law Center: “The Railroad Commission’s New Duties to Keep Texans Warm: Winter Storm Uri Forces Change.” Here are some excerpts:
The throughput of dry gas production from Permian Basin processing plants dropped 85% from early February to February 18, [2021] and two-thirds of the gas processing plants in the Permian Basin had outages. The natural gas industry blamed electricity suppliers for cutting off power to them when they most needed it; power generators blamed the gas industry for failing to supply gas to them. Many natural gas providers had not filed a short form with ERCOT, the grid operator for most of Texas, that would have exempted them from electric outages during emergencies. The Railroad commission seemed unaware of this form and exemption process. Clearly, the natural gas and electricity sectors needed to communicate and coordinate more closely. In the ERCOT system, natural gas provides about half of all electricity generation.
According to an FERC-NERC Staff Report on Storm Uri:
Natural gas-fired plants represented 58% of all generating units with outages, derates, or failures to start. Three-fourths of the generating outages were due to freezing issues (44%) and fuel shortage issues (31%). Almost all (87%) generation outages due to fuel issues were related to natural gas, mostly at the production and processing stages. Gas production declines were caused largely by freezing and weather issues (43%) and by power losses ad midstream, wellhead or gathering facilities (21.5%). The data clearly show that many natural gas facilities were not weatherized to withstand several days of very cold temperatures and that electricity cutoffs caused further declines in gas production—a cascading “death spiral” for gas-fired power plants and their customers.
The Texas Legislature passed SB 3 to address the problems caused by Winter Storm Uri. Among many other provisions, SB 3 provides for a three-staged process of mapping, designating, and weatherizing the gas and electricity infrastructure. A new entity, the Texas Electricity Supply Chain Security and Mapping Committee, is to map the state’s electricity supply chain and designate “critical infrastructure” sources in the chain—by September 1, 2022. Then the committee must develop a communication system among critical sources. The committee consists of the executive director of the RRC and the PUC, the head of ERCOT, and the chief of the Texas Division of Emergency Management.
SB 3 also creates a State Energy Plan Advisory Committee: 12 members appointed by the governor, lieutenant governor and speaker of the House. It is charged with reporting to the Legislature a “comprehensive state energy plan” by September 1, 2022, and with evaluating electricity market structure and pricing mechanisms, which, according to Professor Weaver, “are hugely complex issues that are essential to get right if Texas is to have a reliable electricity system to support its growing economy.”
SB 3 also provided for securitization of “about $7 billion in private losses caused by the storm so that they are spread over the next twenty years in rate increases paid by electric customers.”
Late last year the RRC adopted Rule 3.65 on designating critical gas facilities and entities. The RRC must also adopt rules require gas supply chain facilities to “implement measures to prepare to operate during a weather emergency”—that is, to weatherize—and must inspect critical gas facilities for compliance with those weatherization rules, and report on the industry’s weather emergency preparedness.
Notably, SB 3 exempts from winterization requirements pipelines transporting gas to processing plants or to a pipeline purchaser, and gas lines to compressors, which the RRC cannot require to winterize, even though, “if freezes occur in the field gathering lines that link wellheads to processing plants, the flow of natural gas to pipelines and then onward to electricity generators is affected.”
The version of Rule 3.65 originally proposed by the RRC was strongly criticized by legislators and others; it appeared to allow operators in the gas supply chain to opt out of the critical infrastructure map by simply requiring a form and paying a $150 fee. The RRC justified this part of the rule based on a provision of SB 3 that “somewhat mysteriously appeared” in the bill “at the very end of the legislative session, during the process of reconciling the House and Senate versions of the bill.” The law states that the RRC’s designation rules “require that only the facilities and entities that are prepared to operate during a weather emergency may be designated as a critical customer under this section.” So if an operator or gas plant decides it is not prepared to operate in a winter emergency, it can opt out of critical infrastructure, according to the RRC’s draft rule. After such criticism, the RRC changed the rule so that such facilities cannot opt out. Wells producing less than 250 mcf per day can opt out; according to the RRC staff, removing those wells from critical infrastructure would only affect 1.4$ of total gas production.
Professor Weaver:
It appears that members of the Texas gas production and pipeline sectors lobbied to avoid critical designation in order to avoid weatherization requirements. What does it cost to weatherize natural gas wells? A Federal Reserve Bank of Dallas report estimated that winterizing equipment would cost between $20,000 and $50,000 er well, for a statewide total direct and indirect cost of $85 million to $200 million a year. This cost paled in comparison to the cost to the Texas economy of between $80 billion and $130 billion in losses from the 2021 freeze.
In January 2022 the mapping committee provided a list of best practices for weatherizing natural gas facilities, basic practices that “exist across the oil and gas industry,” such as methanol injection or glycol units to remove water from gas lines, insulating surface equipment, and winterizing roads.
The electric and natural gas industries appear to be still pointing fingers at each other regarding Storm Uri. In the brief freeze in January and early February 2022, the Texas Oil & Gas Association quickly issued press releases assuring Texans that gas would continue to flow; one report was titled “Keeping Power on Proves Best Winterization Tool.” The RRC issued a news release in January 2022 reporting that its inspectors had inspected more than 3,800 natural gas facilities and concluded that 98% of the facilities had been winterized. But Platts S&P Global reported that Permian production dropped about 1.7 Bcf per day on February 3, or about 12%, compared with the prior week average. That seems to contradict the RRC’s report and TXOGA’s claim that gas will continue to flow in winter as long as the gas sector has electricity. Electricity generators fired back: “Gas needs commensurate winterization requirements to those required of generators.”
Professor Weaver concludes that “the reliability of the interconnected gas-electricity grid system in Texas in 2022 is still untested for a Uri-type weather event. … Many eyes are now watching the Railroad Commission and he entities that it regulates to remind them of their new duties to keep their fellow Texans warm.”