The Role of Natural Gas in February’s Power Shortages
Energy is an ever-growing topic in agriculture, especially after the power shortages producers experienced in the February 2021 Winter Storm “Uri.” “The Complicated Issue of Power” was outlined in the April 2021 Nebraska Cattleman as the first in a three-part series on the energy/power issue and the complexities of power relative to the outages. This second feature will outline the role that natural gas played in the power shortages from a supplier and end-user viewpoint, what happened and what can be learned for future weather events.
The February 2021 Valentine’s Day/Presidents’ Day weekend was plagued with the “perfect power storm” caused by subzero temperatures over a very large portion of the country that lasted many days. This event was complicated by low wind generation over the same time period, a natural gas supply shortage and adverse impacts from the cold weather on certain fuel-relating and generating equipment.
WoodRiver Energy LLC, which serves energy needs in Nebraska and other states, helps natural gas users with cost-effective energy solutions as well as budget protection to control energy costs. Don Krattenmaker, WoodRiver Energy vice president of business development, says the whole situation was a really stressful event.
“The first concern was on Friday morning [Feb. 12], when prices just went to the moon,” Krattenmaker recalls. “Then came making sure gas was flowing and finding enough supply to meet customers’ needs.”
Black Hills Energy, an energy provider that serves natural gas and electric utility customers in Nebraska and seven other states, reported that before and during the storm, technicians in Nebraska inspected infrastructure to maintain system integrity and meet extraordinary customer demand.
The problem with the storm was where it was located. Not only did it affect Nebraska with below-freezing temps, which is not uncommon, but the prolonged cold in the Southwest as well as record cold temperatures in that region was unusual.
“Down in Texas, everything about the electric grid and natural gas infrastructure is made for eliminating heat, not about keeping heat in. So, one of the situations that happened was that the natural gas supply in the country dropped 25 to 30 percent over that weekend because of wells and infrastructure freezing,” Krattenmaker adds.
Why It Happened
Losing that much supply overnight caused the supply crunch, which was doubly impacted by the increase in demand of more natural gas for power and heat. There is little natural gas production in Nebraska, but what is produced is all in the western part of the state. During this extreme event, gas was flowing to the highest priced market first, mostly Kansas, Oklahoma and Texas. The remaining supply was available to whomever could pay the most in different areas.
“It became a situation where gas was flowing where it could; even gas from the East Coast was trying to get west,” Krattenmaker states. “The pipelines only have so much space, which became another factor in the crisis when those points from the East moving west filled up, adding to the price increase.”
WoodRiver Energy was able to acquire some natural gas from those able to shut down operations to use for other customers who needed it. Some customers switched to backup fuel if they had that capability. Black Hills Energy worked around the clock to purchase needed additional supplies and communicated with customers about steps they could take to minimize the financial burden and reduce increased energy use generated by the frigid temperatures.
Nebraska was able to conserve more natural gas because many ethanol facilities and large industrial customers shutdown production in order for gas to come back on the market. Prices got to a certain level that it was more economical for those industrial plants to shut down or reduce operations than it was to keep operating.
In the agriculture industry, there are three primary sources of demand for natural gas: feedlots use natural gas to flake corn for feed; grain dryers use natural gas to dry the grain in the fall for storage; and farmers use natural gas to run their irrigation systems.
Krattenmaker says they talked to their feedlot customers about switching equipment over to a backup fuel or conserving as much as they could.
One of those customers was a cattle feedlot in Kansas who was a large user of natural gas. They advised the feedlot to conserve as much gas as possible and determined they had the capability of running their equipment with a backup fuel instead of natural gas. By shutting down their natural gas usage, WoodRiver Energy was able to reacquire the natural gas.
“It took making those phone calls to find out what users could do,” Krattenmaker recalls. “We also called a lot of customers who said there was nothing they could do, so they continued to burn.”
In some situations, depending on the utility and the utility rules, WoodRiver Energy couldn’t talk to their customers or help them change their outcome. Those were cases where the utility told them what they had to deliver on behalf of that customer, causing some communication issues.
Widespread and sustained cold weather created record demand for natural gas, contributing to the largest natural gas price increase in more than 20 years. The American Public Gas Association (APGA) noted during the Presidents’ Day weekend, natural gas prices, which had hovered around $3/MMBtu in recent years, skyrocketed to $300/MMBtu and even higher in some cases.
“We knew prices could go up, but we never expected prices to go to the levels that they went to,” Krattenmaker says.
Natural gas price is determined by S&P Global Platts and printed in the industry publication Platts Gas Daily. Platts does a survey of market participants where fixed-price transactions are reported and verified, then a composite of the market participants and of the prices around the country are compiled.
The storm affected a number of WoodRiver Energy’s customers, but the great majority of their contract customers were not impacted. These customers bought gas in a way where they transferred that risk and were provided with price protection. Contracting with the supplier is a type of service offered, similar to insurance. The standard contract is a partial-requirement contract where the customer and the supplier agree to a first-of-the-month volume. A full-requirement contract means the customer gets all of their gas at an agreed upon price, which could be a fixed, managed or market-based price that allows the customer to transfer risk to the supplier.
With Black Hills Energy being a natural gas distribution company, they experienced significant commodity cost increases from their suppliers. Their gas supply team consistently and reliably works to minimize the impact of natural gas cost swings for customers. The storm fueled the high price for the gas commodity – which is a pass-through to their customers with no markup.
Fort Kearney Consolidated, a cattle feedyard based in Minden, was affected by the higher natural gas prices as well as the rolling blackouts. Brian Kissinger, feedyard manager, heard that rolling blackouts would be coming and, like a lot of people, had never heard the term. Brian took initiative to call Southern Power District to find out the situation.
“I knew they couldn’t keep the rolling blackouts from coming but wanted to find out if they could at least give us notice before we were instantly shutdown [in order] to switch over to the generator to keep feeding,” Kissinger says.
Unfortunately, the morning after Kissinger made his call, they lost electricity at 7:30 a.m., right when they were trying to get cattle fed.
“Everything at that point was running, so we tried to get it switched over to generator and everything unplugged in the middle of below-freezing temps,” Kissinger says. “The blackout lasted about an hour and a half.”
Even though Fort Kearney Consolidated has generators that they can run to keep tanks full and cattle fed, it takes time to switch over. Natural gas is used at the feedlot to power their corn-flaking machine and heat the building. They didn’t have an interruption in natural gas and were able to keep their flaker running, but prices increased considerably. They do not have the ability to convert to a backup fuel to decrease natural gas usage.
Black Hills Energy values Nebraska’s cattle producers as many of their customers operate feedlots and have experienced the benefits of choosing natural gas. Reliability is important to them, and no customers in Nebraska were left without natural gas during the storm.
“This storm was considered a 1-in-50-year storm, which tells us another storm like this will come again,” Krattenmaker warns.
He hopes we can learn from this issue and users in the southwest part of the country can start burying their gathering well systems or pipes, or wrapping and using heating elements to provide for insulation so that these freeze outs don’t have such a negative impact for a large swath of the country.
Kissinger agrees that it was a difficult time and communication could have been improved.
Krattenmaker wants cattle producers to know two things:
Talk to your supplier before winter. As we continue down the path of more unreliable sources of energy, this situation is more likely to happen again. It’s not imperative to buy a backup system or switch to propane, but work with your supplier as winter approaches.
Look at products and services that help you stay protected from the standing market. Make sure you’re protecting your business. Look into contracting offers to control your outcome rather than be hit by a situation and end up with a huge gas bill.
“At the end of the day, I hope everyone can put politics aside and start talking about what is a good energy policy going forward,” Krattenmaker notes. “There are ways we can solve these problems so we don’t have an energy crisis in our country.”
Written by: Kelsey Pope, Contributing Writer
Source: Nebraska Cattleman August Issue