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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Texas Gas Companies To Pay Steep Bill To Avoid Another Power Crisis

Texas legislators have hashed out their differences in proposed legislation to address the failures at power plants and gas infrastructure and prevent another deadly power crisis like the disaster in February, which led to the death of more than 100 people and left over 11 million without electricity for days.

The Texas House and Senate passed the new legislation, Senate Bill 3, in the nick of time, and sent it to Governor Greg Abbott one day before 87th Texas Legislature expired, which was on Memorial Day. In the version passed by the House and sent to the Senate, the state would require power plants to weatherize to be prepared for extreme weather events such as the Texas Freeze in February. Some gas infrastructure—related to feeding gas to gas-fired power plants—considered critical will also be required to weatherize to avoid a repeat of this winter’s disastrous crisis. The state will identify which gas facilities and infrastructure are “critical” by mapping the electricity supply chain in Texas, while the Railroad Commission of Texas will have the authority to say what upgrades should be made at those gas facilities.  

The bill also sets penalties of between $5,000 and $1 million for operators who fail to comply with the requirements to be better prepared for harsh weather.

The potential costs for winterization would be high. But the cost of doing nothing and not increasing oversight or improving the communication between power facilities and gas infrastructure would be even higher and even more disastrous in future extreme weather events, analysts say.

Texas House Representative Chris Paddie, who presented the bill, said, as carried by Bloomberg, that it was the legislation’s best attempt “to try to address the systematic failures from wellhead to light switch”.

Critical Gas Infrastructure

Some energy analysts criticized the provision that only some gas facilities would be required to upgrade and winterize, describing it as “a half step” which does not address the bigger-picture issues with supply to electricity generators.

“If there’s a take-home message for legislators to consider, are we requiring the gas plants, which were the biggest part of the outages, to winterize?” Daniel Cohan, an energy researcher at Rice University, commented on the legislation for RTO Insider.

“There’s been more to winterize the power plant side than the gas side. We’ll just have more plants that don’t have fuel to burn. It’s hard to see how this provides the full coverage of winterization that we need,” Cohan added.

The oil and gas industry, however, says that 80 percent of the natural gas produced in Texas is not used for electricity generation, and the immediate step should be to map the supply chain to determine which natural gas production, distribution, and storage facilities feed into the gas electricity generation and local distribution companies.

“We also agree that proper weatherization of both power-generation and natural gas facilities directly connected to power generation are key elements of reform,” Todd Staples, president of the Texas Oil and Gas Association (TXOGA), wrote in an op-end for The Dallas Morning News last month.

“Some have suggested that all natural gas infrastructure – including 86,000 natural gas wells and another 164,000 oil wells that produce associated natural gas – should weatherize. In fact, many operators already weatherize at various levels. Yet without power, no amount of weatherization matters,” Staples said. Related: Hedge Funds Grow More Bullish On U.S. Crude Oil

According to TXOGA president, “Improved communications, supply chain mapping, designation of critical load, storage and weatherization of power generation and those natural gas facilities directly connected to generation are all keys to ensuring natural gas does its part to keep Texans warm in the winter and cool in the summer.”

How Much Would Weatherization Cost?

Following the crisis this winter, economists and economic policy advisors at the Dallas Fed indicated in an analysis last month that “winterizing for extreme winter weather events appears financially reasonable.”

Early estimates indicated that the freeze and outage may cost the Texas economy $80 billion–$130 billion in direct and indirect economic loss, while the amount of power lost along with value of lost load (VOLL) estimates suggest the power outage cost $4.3 billion, according to estimates compiled by the Dallas Fed.

There is a range of preventive measures that could be implemented, each at a cost.

“Winterizing standards on new oil and gas wells may offer a targeted and effective approach in the long run,” the Dallas Fed economists said, adding that many companies already implement winterizing measures. Winterizing equipment costs between $20,000 and $50,000 per well, so these measures statewide would total $85 million to $200 million annually.

Another fix, statewide and perhaps inexpensive, would be to prioritize electricity delivery to gas infrastructure. “If power plant and pipeline operators improve coordination to identify and constantly monitor the gas infrastructure requiring such prioritization, some of the problems experienced during the freeze could be prevented,” the Dallas Fed said.

Winterizing equipment for Texas gas plants could cost between $50,000 and $500,000 per plant, a 2011 estimate showed. Assuming these cost estimates remain valid now, installing winterizing equipment on all 162 gas-powered plants in Texas could cost up to $95 million today, according to the economists.

“Using our VOLL estimate of $4.3 billion, and accounting for the once-a-decade frequency of subzero temperatures in Texas, winterizing measures and other actions should be equal to or less than $430 million annually,” they said.

And concluded: “Based on our analysis, the most reasonable solutions to prevent winter storm blackouts are within the bounds of being economically justified.”    

By Tsvetana Paraskova for Oilprice.com

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