Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Texas freeze delivers billions in profits to gas and power sellers

Stock MarketsMay 06, 2021 05:16PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: A neighborhood experiences a power outage after winter weather caused electricity blackouts in San Marcos, Texas, U.S. February 16, 2021. REUTERS/Mikala Compton 2/2

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 (NYSE:KMI), Enterprise Products Partners (NYSE:EPD) and Energy Transfer (NYSE:ET), oil giant BP plc (LON:BP), and banks Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC) (BofA) and Macquarie Group (OTC:MQBKY).

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 (NYSE:PXD) $80 million, Chevron (NYSE:CVX) about $300 million, and Exxon Mobil (NYSE:XOM) $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 appears to have been the biggest winner, saying in its quarterly results it expects gains of about $2.4 billion for the year from the storm. The pipeline giant made most of its money from trading and from selling what it had in storage during the period when prices skyrocketed.

Energy Transfer did not comment for this story.

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.

A source close to BP (NYSE:BP) said gas trading contributed hundreds of millions of dollars to the company's first quarter results. Chief Executive Bernard Looney said he wanted to "deftly avoid" giving an exact number for the trading division's results.

Graphic: Texas gas prices soars during February freeze - https://fingfx.thomsonreuters.com/gfx/ce/jznvnreddvl/Pasted%20image%201620219759793.png

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.

"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 (NYSE:JPM) and Citigroup (NYSE:C), maintaining the cold snap was an extreme event that overrode contracts for power generation and delivery.

Texas freeze delivers billions in profits to gas and power sellers
 

Related Articles

Tesla lifts Nasdaq to record high
Tesla lifts Nasdaq to record high By Reuters - Jun 23, 2021 16

By Noel Randewich and Devik Jain (Reuters) - The Nasdaq rose to an all-time high on Wednesday, fueled by a rally in Tesla (NASDAQ:TSLA) Inc, with investors cheering data that...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Charles Edwards
Charles Edwards May 06, 2021 6:57PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This is evil, but COVID-19 delivering billions in profits to pharmaceutical companies is not?
Drew Antone
Drew Antone May 06, 2021 3:25PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Take the CEOs and commence with Public Hangings for this...... EXACTLY what would have been done in old days for Cheating somrone
Benjamin McIntire
Benjamin McIntire May 06, 2021 2:36PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
A huge scam orchestrated by ERCOT.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email