Well, let's talk Texas. First and foremost, if you are taking even the slightest bit of joy in the suffering of others or are trying to turn an act of nature into a political point, back off. Seriously. This column will be way over your head, so go back to Twitter (TWTR) and the enlightening commentary there. Seriously.
But in the midst of a sea of ignorance, I will explain what happened. It got REALLY cold. In fact the temperature at Houston's IAH airport Wednesday morning tied and exceeded (based on lowest high and lowest low) the all-time record. The last similar reading was in 1895. That's 126 years!
So, the demand for electricity went through the roof, and well exceeded even the normal summer highs. But that's the key point here, and something the some in the mainstream media will never understand.
TEXAS HAS SEASONS.
So, demand in February exceeded what normally occurs in August, at the exact time that the cold weather knocked supply for a loop. That is the real problem here. It got really cold.
The problem is that Texas' generation system failed...and failed miserably to hit that peak demand. Wind power "wasn't the problem" in Texas some say, but here's a little knowledge. Texas' wind generation parc, larger than all but three other countries' generation parcs, failed miserably Monday and Tuesday. The LIUM site has all the numbers, and, clearly, wind failed in the clutch. If you are so "woke" that you can't understand these simple numbers, again, this column is too advanced for you. Enjoy Twitter.
But natgas failed, too. Big time. Why? Because Texas has seasons! And normally even the winter season isn't enough to freeze natgas transmission lines, but, again, we hit a 126-year low in temperatures.
The problem, as with any electrical grid, is that power is distributed on a marginal basis. And, in Texas the marginal supply is based on availability of natural gas. So, extra power, a marginal amount in economic parlance, was demanded...and it just never came.
So, does that mean Texas should destroy its ~30,000MW worth of wind generation capacity? No. Does it mean that Texas should wean itself from fossil fuels completely and install Elon's Tesla (TSLA) storage batteries everywhere? Nope. The batteries just aren't that good. They could never power Tyler, let alone College Station or Houston.
So, what is the solution? Well, as the clueless suggest that the solution is MORE failure-prone windmills, which, as a group, just performed horribly when Texas needed them most, let me make an alternative suggestion: Texas needs more natural gas.
Wait...didn't about 20% of Texas' natural gas generation go off-line early Monday morning, contributing to this problem? Yes, clearly, additional winterization is needed. That should have happened after the brutal winter of 2011, but in the U.S. the can is so often kicked down the road. These widespread power outages should never happen again, even as extraordinary cold was predicted to be a thing of the past -- wrongly.
Texas' power-generation infrastructure bears the scars of the bankruptcies of TXU and Enron (the eight-largest U.S bankruptcy, at the time, and still the 7th largest in U.S. history) and I don't think re-regulation is the answer. Texas' not-for-profit regulator, ERCOT, has been a never-ending source of frustration through constant obfuscation and incompetence this week.
Anyway, this is an investment column and here is a play. Texas needs more gas. Wait Texas...the oil state...needs more gas? Yes, they are two separate formulations. If you weren't aware of that...again, enjoy your Twitter feed.
Natgas has been the redheaded step-child of the energy industry for too long. Being flared off, frozen, or sent off to far-off lands via LNG terminals. It's like we forgot...we need the stuff here! We do.
That's a problem, and that's why the 6:1 ratio used to convert natgas volume to oil volumes is so crucial. Even after a recent climb, natgas current price level of $3.10/mmbtu is 70% below the 6:1 volumetric parity price level implied by $60/bbl crude oil, as measured by West Texas Intermediate crude pricing.
We have GOT to embrace natgas -- which in pure form only has one carbon atom (CH4; methane) -- not demonize it. I just can't explain that clearly enough.
My favorite natgas play has been Antero Midstream (AM) , approaching a 300% gain since I bought it in the throes of the Covid crisis last March. AM is a sister company to its larger producing cousin, Antero Resources (AR) .
So, let's give 'em our capital and get them to build some more damn pipe! Putting in sufficient infrastructure to keep it warm would help, too.
It is very difficult to compile a definite list of natgas pipeline stocks, but this article is a good start. I own NuStar (NS) preferreds in addition to my AM holding. Any more cold weather will convince me that I should own them all.
To all my friends/clients in Texas...stay safe and stay warm.
