Results tally up billions in profit from Texas freeze for gas and power
sellers
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[May 06, 2021] By
Devika Krishna Kumar, Scott DiSavino and Jessica Resnick-Ault
(Reuters) - Natural gas suppliers, pipeline
companies and banks that trade commodities have emerged as the biggest
market winners from February's U.S. winter blast that roiled gas and
power markets, according to more than two dozen interviews and quarterly
earnings reports.
The deep freeze caught Texas's utilities off-guard, killed more than 100
people and left 4.5 million without power. Demand for heat pushed
wholesale power costs to 400 times the usual amount and propelled
natural gas prices to record highs, forcing utilities and consumers to
pay exorbitant bills.
After the storm, few companies wanted to talk about their financial
gains, unwilling to be seen as profiting off others' hardships. But a
clearer picture is emerging from quarterly earnings and as utility
companies smarting from big bills sue to recoup their losses.
The biggest winners were companies with access to supplies, including
leading energy trader Vitol, gas suppliers Kinder Morgan, Enterprise
Products Partners and Energy Transfer, and banks Goldman Sachs, Bank of
America (BofA) and Macquarie Group.
The firms combined stand to reap billions of dollars in profits by
selling gas and power during the storm, according to interviews and
reviews of public documents. It is possible that some companies may
never collect on those sales due to ongoing litigation, however.
Losers include producers that could not deliver oil and gas due to
frozen wellheads, gathering systems and processing stations. The
week-long output loss cost shale producer Pioneer Natural Resources $80
million, Chevron about $300 million, and Exxon Mobil $800 million.
Utilities are complaining of price gouging and of unwarranted supply
cancellations. The Federal Energy Regulatory Commission is reviewing gas
and power markets for potential market manipulation.
Goldman Sachs and Vitol did not comment. BofA did not respond to a
request for comment.
'MAXIMUM WITHDRAWAL'
Energy Transfer, which can store about 60% of U.S. daily gas consumption
in areas hit hardest by the February freeze, could report a $850 million
profit from selling the fuel to utilities and industrial customers
during the storm, according to analysts at East Daley Capital. Other
people familiar with its operations say that figure could be higher.
Energy Transfer did not comment for this story. The company reports
results on Thursday.
Rival Enterprise Products Partners said the storm led to gains of about
$250 million in the first quarter.
Kinder Morgan, another gas storage and pipeline operator, earned about
$1 billion during the storm, the vast majority from higher gas prices
and sales. Anticipating high demand, Kinder Morgan said it dispatched
workers and backup generators ahead of the storm to its gas storage and
pipeline facilities.
At the beginning of February, gas prices ranged from $2.50 to $3 per
million British thermal unit (mmBtu) at hubs from Houston to Tulsa,
Oklahoma. Prices began climbing on Feb. 11 into the hundreds of dollars,
with Tulsa's hub surging to a record $1,192.86 on Feb. 17, according to
government data.
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Overhead power lines are seen during record-breaking temperatures in
Houston, Texas, U.S., February 17, 2021. REUTERS/Adrees Latif
"That's what happens when you go from a very well supplied market to a very
tight market, and in this case a catastrophically tight market," said one
natural gas trader. "That was very localized pain, and it really surprised a lot
of people."
Energy traders with three Texas electric cooperatives told Reuters they paid as
much as $400 per mmBtu during a four-day stretch that began Valentine's Day
weekend. They requested anonymity because they were not authorized to speak
about the crisis. San Antonio's municipal utility CPS Energy said its gas bill
for the week was about $700 million.
"I've been tracking natural gas markets for 20 years. I've never seen price
increases like we saw," said Tyson Slocum, an energy and environmental advisory
committee member at the Commodity Futures Trading Commission and a director at
Public Citizen, a consumer advocacy organization.
WINNING AND LOSING
Australia's Macquarie, the second-largest marketer of U.S. natural gas, said its
trading around the storm boosted its overall profit outlook for the year by
about 10%, which analysts estimated at about A$400 million ($317 million).
Ahead of the storm, Macquarie traders researched how previous cold fronts
disrupted infrastructure to prepare a plan, said sources within the firm, who
requested anonymity. The company did not comment for this story.
Texas's grid operator ERCOT canceled $1 billion in service charges and state
officials are considering securitizing unpaid ERCOT bills from electric
companies that defaulted.
Many of the firms that profited from trading, such as Goldman Sachs and BofA,
are also facing losses from their exposure to utilities and electric
co-operatives that have declared bankruptcy, according to court filings.
BofA made hundreds of millions via its trading arm, according to a source with
direct knowledge of the matter, but it is owed nearly $480 million by Brazos
Electric Power Cooperative, which filed for bankruptcy.
Disputes over price gouging and reneged contracts have also emerged after some
suppliers declared the freeze was a force majeure event that allowed them to
suspend contracts.
Macquarie was sued by Exxon seeking to void an $11 million gas bill. CPS Energy
sued BP, Chevron, Energy Transfer and others for submitting bills that ran into
the hundreds of millions of dollars.
Texas wind farm operators also have filed lawsuits against trading arms of JP
Morgan Chase and Citigroup, maintaining the cold snap was an extreme event that
overrode contracts for power generation and delivery.
(Reporting By Devika Krishna Kumar, Scott DiSavino, Jessica Resnick Ault, and
Gary McWilliams; additional reporting by Liz Hampton, Stephanie Kelly and
Jennifer Hiller; writing by David Gaffen and Gary McWilliams; Editing by
Marguerita Choy)
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