This February brought another bout of extreme weather to the United States. As subzero temperatures swept across the country, energy providers experienced unprecedented demands for heat and electricity. While many of us were watching the news, financial analysts have been watching how these winter storms affect energy stocks during this cold snap.
Record Lows during America’s Cold Snap
Normally, Arctic temperatures are contained within the polar vortex by the jet stream. However, the pressure systems usually concentrated around the North Pole pushed winter snow storms south. It brought snow and freezing temperatures to some of the driest, hottest parts of the country.
At one point, an estimated 150 million Americans experienced winter storm warnings. Meteorologists said roughly 73% of the country received snowfall. Many who live in the northern regions have seen these conditions before. But, southern states proved they were unprepared to deal with energy demands during the cold snap.
For the first time in the state’s history, every county in Texas was under winter storm warnings. At the coldest point of these extreme weather conditions, it was colder in Dallas than it was in Anchorage. When these drastic changes in temperature occur, it becomes dangerous to be outside. There are serious concerns of frostbite, hypothermia, and death when the power grid is disrupted.
Dealing with Rising Energy Demands
The Midwest and Southern parts of the United States faced record low temperatures that tested the limits of the power supply. To cope with rising energy usage, SPP implemented rotating power outages. The company had to reduce demand on their power grid in 14 states. By Sunday February 14, it became clear that supply and distribution would reach critical levels.
Rolling power outages began February 15, with residents told to expect them to last about 30-60 minutes. Here in the Midwest, we were left without power for up to an hour at a time. But, local providers quickly restored electricity and heat. Although it was inconvenient, the worst part was not knowing when or which part of the city would be affected.
However, it becomes more serious in places where the infrastructure is not designed for such extreme temperatures. The blackouts left 4.3 million people without heat and electricity in Texas. Some residents criticized the lack of response and preparedness, especially those who lost loved ones due to the extreme temperatures.
Energy Stocks Performance During the Cold Snap
As bitter temperatures drove up the country’s demand, the energy sector saw significant gains. Natural gas prices skyrocketed by 7.5%, reaching the highest levels since November. Meanwhile, oil prices also saw a boost. Oil production dropped to approximately 2 million barrels a day. This drove prices to more than $60 a barrel, the highest they have been since January 2020.
Comstock Resources was one of the biggest winners. They reported that it was “like hitting the jackpot” since it was able to sell natural gas for premium prices. EQT Corp, a natural gas provider based in the shale regions of Ohio and Pennsylvania, also saw gains from the high prices. Australia’s Macquarie Group also expects to see a 10% rise in profits this year.
With large swaths or refineries out of commission along the Gulf Coast, companies like Valero Energy Corp and HollyFrontier Corp also saw increased production. Other refiners, like Shell and Total, have little exposure to the Texas markets. So, they are also in a prime position to ramp up production and increase profits.
Unfortunately, many other utilities providers reported huge losses due to the winter storms. Alternative power sources became ineffective with wind turbines and natural gas wells freezing over.
Innergex Renewable Energy Inc estimates the financial impact on their Texas wind farms to be about $48 million. Algonquin Power and Utilities Corp adjusted their projected core earnings by $45-55 million due to restricted production. Just Energy doubts they will be able to continue after it forecasted $250 million in losses.
Furthermore, the extreme weather also interfered with transportation of oil and shutdown many refineries. The country’s hub of refineries along the Gulf Coast were the hardest hit. Exxon Mobil and Phillips 66 halted operations, losing 19% of the U.S.’s refining capacity. Diamondback Energy expects to lose at least five days of production. Other southern shale oil producers say it could take two weeks to restart their crude oil operations.
As milder temperatures return, you can be certain that financial analysts and investors alike will continue to watch the energy sector.