WEBVTT - Texas Winter Storm – Lessons for Power, Gas, Oil 0:00:00.120 --> 0:00:03.760 Hi everyone. So prolonged frigid temperatures this past weekend caused 0:00:03.760 --> 0:00:06.480 electricity demand and the Texas Power Grid or URCOT to 0:00:06.559 --> 0:00:08.920 explode and tripped more than a third of the state's 0:00:08.960 --> 0:00:12.480 generation offline. This scent power prices careening towards the nine 0:00:12.480 --> 0:00:15.319 thousand dollar per meguat our market price cap. Of course, 0:00:15.600 --> 0:00:17.920 any plant that manas to stay online hit the jackpot. 0:00:18.320 --> 0:00:21.120 Real time power sales on February seventeenth totaled nearly ten 0:00:21.120 --> 0:00:23.520 billion dollars, but many were not able to stay online. 0:00:23.680 --> 0:00:26.480 The extreme cold resulted in more than thirty thousand megawats 0:00:26.480 --> 0:00:29.360 of power plant outages in a situation where demand outstrips 0:00:29.360 --> 0:00:31.520 supply by thirty percent, and as most of us will 0:00:31.560 --> 0:00:34.680 know by now, this resulted in millions of Texans without power, heat, 0:00:34.720 --> 0:00:36.320 and clean water. We have to note that our hearts 0:00:36.320 --> 0:00:38.839 go out to our friends, family, colleagues, and everyone impacted 0:00:38.840 --> 0:00:40.559 by the storm, and we really hope things get back 0:00:40.560 --> 0:00:42.800 online as soon as possible. This week on the show, 0:00:42.960 --> 0:00:46.080 we've got Anastasia Dialinas, head of US Oil Research, and 0:00:46.200 --> 0:00:48.800 Nick Steckler, head of North American Power Research for BENF. 0:00:48.880 --> 0:00:50.720 They're going to tell us about how the state's power, 0:00:50.800 --> 0:00:52.839 oil and gas sectors all went down at once, and 0:00:52.880 --> 0:00:55.080 what Texas might consider to build back and build back 0:00:55.120 --> 0:00:57.840 better being if users can find ongoing covers the US power, 0:00:57.960 --> 0:00:59.960 oil and gas markets on bef dot com, the benif 0:01:00.000 --> 0:01:02.240 bobile app, and the Bloomberg terminal. As a reminder, be 0:01:02.480 --> 0:01:04.520 to not provide investment or strategy advice, and you can 0:01:04.560 --> 0:01:06.040 hear the full disclaimer at the end of the show. 0:01:06.280 --> 0:01:08.280 I'm Mark Taylor and you're listening to Switch on the 0:01:08.319 --> 0:01:19.360 BP podcast. Hi Nick, Hyanna, Hey, Hi make thanks for 0:01:19.440 --> 0:01:21.720 joining us today. So the first thing I guess we 0:01:21.840 --> 0:01:24.679 should jump into really with this topic is how did 0:01:24.760 --> 0:01:27.000 we get here. One of the first things to specify 0:01:27.360 --> 0:01:30.440 comparing it to other blackouts is that it actually wasn't 0:01:30.520 --> 0:01:32.840 the grid itself as much that failed, but more the 0:01:32.920 --> 0:01:36.960 power supply. So if we break down the electricity chain 0:01:37.280 --> 0:01:41.679 as generators, big power lines, smaller power lines, and then 0:01:42.200 --> 0:01:46.759 customers and their meters and things, it's really a short 0:01:46.840 --> 0:01:50.120 fall on the power generation side that's being experienced right now, 0:01:50.240 --> 0:01:54.120 and it's one that we really have rarely ever seen before. 0:01:54.320 --> 0:01:58.240 So the size of this capacity shortfall in Texas, the 0:01:58.320 --> 0:02:01.240 number of generators that are out of customers that have 0:02:01.280 --> 0:02:06.040 been cut off as a result is enormous. So how 0:02:06.080 --> 0:02:10.639 did this capacity shortfall happen? The timeline of events breaks 0:02:10.680 --> 0:02:14.160 down like this. Texas was starting to see very unseasonably 0:02:14.240 --> 0:02:18.120 cold weather going into Valentine's Day weekend, so February twelve, 0:02:19.240 --> 0:02:24.480 by Valentine's Day, the electric demand in Texas was already 0:02:25.320 --> 0:02:29.960 at the extreme planning scenario, so not that what they 0:02:30.000 --> 0:02:36.160 were expecting, but already there percentile extreme case by Valentine's Day, 0:02:36.680 --> 0:02:39.919 and then by the next day, by President's Day, for 0:02:41.120 --> 0:02:44.920 demand was set to blow past that and hit summer levels. 0:02:45.480 --> 0:02:49.400 And to to emphasize how critical that is, Texas is 0:02:49.520 --> 0:02:53.760 a summer peaking system, so winter is usually pretty relaxed 0:02:53.800 --> 0:02:57.760 in Texas. Generators generally their business model, especially if they're 0:02:57.760 --> 0:03:00.800 peaking generators, is to really gear for the summer. They 0:03:00.840 --> 0:03:02.240 make a lot of their money in the summer because 0:03:02.240 --> 0:03:04.720 demand is highest in the summer. It's about higher in 0:03:04.760 --> 0:03:08.120 the summer. But this time we saw summer level demand 0:03:08.280 --> 0:03:13.360 just pop up in Texas and the grid operator going 0:03:13.440 --> 0:03:17.840 into that weekend under forecast demand by about and that 0:03:18.040 --> 0:03:23.840 led to a sizeable similar capacity shortfall and a lot 0:03:23.880 --> 0:03:25.840 of customers having to be shut off as a result. 0:03:26.200 --> 0:03:29.799 The second thing, which is also very important, which is 0:03:30.040 --> 0:03:32.399 once we account for the fact that plants weren't really 0:03:32.600 --> 0:03:34.960 ready for this. They weren't expecting this, They weren't expecting 0:03:35.040 --> 0:03:38.680 such a rare storm to occur. That storm came through 0:03:39.080 --> 0:03:42.240 and knocked a lot of plants offline with his physical force, 0:03:42.440 --> 0:03:44.720 with the cold and with the ice. So it's really 0:03:44.760 --> 0:03:47.200 two parts. Plants weren't ready for just the sheer amount 0:03:47.200 --> 0:03:50.400 of demand, but then once it hit the ones that 0:03:50.480 --> 0:03:53.200 were online. The plants that were online got hit and 0:03:53.280 --> 0:03:56.520 taken out in record numbers. A couple of things. What 0:03:56.560 --> 0:03:58.480 does it mean to get ready for summer demand? What 0:03:58.560 --> 0:04:01.720 are they doing right now? Typic to prepped for for summer. 0:04:02.000 --> 0:04:05.840 So normally ahead of the summer you'll see plants getting ready, 0:04:06.320 --> 0:04:10.720 you know, staffing, reviewing equipment, making sure that their failure 0:04:10.800 --> 0:04:13.640 rate is going to be really low, generally so they 0:04:13.680 --> 0:04:16.120 can capture price spikes, because that is when they make 0:04:16.160 --> 0:04:19.479 the most of their money. Some plants that don't see 0:04:19.520 --> 0:04:22.920 a big revenue opportunity in the winter will just sometimes 0:04:23.400 --> 0:04:26.480 shut down for for the time being and wait till summer, 0:04:26.839 --> 0:04:28.920 and so they rely on the guidance from the grid 0:04:28.960 --> 0:04:32.159 operator to be ready to go. And in this case, 0:04:32.200 --> 0:04:35.279 the grid operator was expecting about fifty eight giga wats 0:04:35.320 --> 0:04:38.200 of demand for the winter as peak, and we ended 0:04:38.240 --> 0:04:42.279 up seeing about seventy five gigawatts of demand that customers wanted. 0:04:42.760 --> 0:04:46.000 I say wanted because thus customers never actually got to 0:04:46.080 --> 0:04:48.400 pull that much demand because they caught kurt tailed. But 0:04:48.520 --> 0:04:52.440 that's where it was headed going into February. Can you 0:04:52.480 --> 0:04:54.200 explain that a little bit, that concept a little bit 0:04:54.240 --> 0:04:56.320 for people that might not be familiar. They got curtailed. 0:04:56.360 --> 0:04:59.000 What does that mean? Yeah, So the instruction from the 0:04:59.040 --> 0:05:03.480 grid operators called ARCOTT is to all the utilities, the 0:05:03.640 --> 0:05:07.400 different electric utilities in Texas to shut off different parts 0:05:07.440 --> 0:05:11.279 of their regional grids. And that's to conserve energy. Because 0:05:11.560 --> 0:05:13.840 there was no way that ARCOT had enough capacity to 0:05:13.920 --> 0:05:16.640 be able to meet all seventy five gigawatts of of 0:05:16.760 --> 0:05:21.360 demand in the market. So as a matter of conservation 0:05:21.520 --> 0:05:23.680 and keeping the grid afloat, they had to tell the 0:05:23.720 --> 0:05:27.240 regional utilities, hey, go go flip off some of your 0:05:27.600 --> 0:05:31.400 different substations and pull customers offline. Okay, so some of 0:05:31.440 --> 0:05:33.520 them got curtailed, but you also said that some couldn't 0:05:33.560 --> 0:05:35.280 turn on at all. Why is that? You know? I 0:05:35.520 --> 0:05:38.040 heard on another podcast this morning that you know, plants 0:05:38.080 --> 0:05:40.719 in North Dakota, South Dakota they run in the winter, 0:05:40.880 --> 0:05:43.160 gas plants. Why couldn't the ones in Texas? Why did they? 0:05:43.600 --> 0:05:45.880 I guess you said they froze. Looking at the data 0:05:46.040 --> 0:05:48.400 on outages, which is still coming in, right, we're still 0:05:48.440 --> 0:05:52.000 in the middle of this as of today. But plants 0:05:52.160 --> 0:05:56.960 across all different types, so all generation technologies cold nuclear, 0:05:57.160 --> 0:06:00.960 natural gas, wind have seen issues with freeze. So ice 0:06:01.560 --> 0:06:06.240 accumulating components locking up probably the biggest issue we've seen 0:06:06.320 --> 0:06:08.960 so far. It makes sense. The biggest issue, because natural 0:06:09.040 --> 0:06:11.600 gas is the largest share of their cup power mix, 0:06:12.000 --> 0:06:15.640 is that that plants can't get fuel natural gas plants 0:06:16.320 --> 0:06:19.680 not getting fuel is probably the largest source of outage. 0:06:20.080 --> 0:06:23.360 I mean, the freeze not only affects plants and the 0:06:23.480 --> 0:06:26.839 machinery at the power plants themselves, but also is definitely 0:06:26.920 --> 0:06:31.520 hitting the oil fields. Texas is home to about of 0:06:32.000 --> 0:06:35.560 US natural gas and about half of oil production. Right, 0:06:35.640 --> 0:06:37.960 It's a huge state when it comes to supply of 0:06:38.000 --> 0:06:41.160 oil and gas. But even some of the biggest oil 0:06:41.200 --> 0:06:43.520 fields like the Permian out in West Texas got snow 0:06:43.560 --> 0:06:47.640 and ice and freezing cold temperatures. And again, just like 0:06:47.839 --> 0:06:51.480 with power gin, cold temperatures are certainly not unique to 0:06:51.720 --> 0:06:54.040 oil and gas production. North Dakota gets them all the time, 0:06:54.160 --> 0:06:56.000 but you need to be ready for them. And the 0:06:56.080 --> 0:06:58.960 things that can happen in oil and gas production is 0:06:59.080 --> 0:07:02.000 that first all reservoirs not only have oil and gas 0:07:02.080 --> 0:07:03.920 in them, but a good amount of water. That water 0:07:04.040 --> 0:07:06.400 has to be extracted with the oil and gas and 0:07:06.480 --> 0:07:09.600 then processed and separated from the gas stream and the 0:07:09.640 --> 0:07:13.680 oil stream that can then flow onto customers. If it's freezing, 0:07:14.040 --> 0:07:16.240 that water can freeze in the pipes and freezing the 0:07:16.320 --> 0:07:19.640 valves if they're not insulated and weatherized, and that is 0:07:19.680 --> 0:07:22.040 exactly what was happening, and so suddenly they couldn't extract 0:07:22.080 --> 0:07:24.880 as much oil and gas. Liquids are freezing in the 0:07:24.960 --> 0:07:27.240 pipelines because a lot of pipelines, especially out in the 0:07:27.320 --> 0:07:29.680 fields in West Texas, are above ground because they're not 0:07:29.760 --> 0:07:32.280 used to being cold as opposed to in other parts 0:07:32.320 --> 0:07:33.840 of the country where they'll bury them to keep them 0:07:33.880 --> 0:07:36.320 a bit warmer. So a lot of the oil and 0:07:36.360 --> 0:07:39.960 gas infrastructure was also freezing up and having a lot 0:07:40.040 --> 0:07:42.760 of issues due to the cold weather, and that meant 0:07:42.840 --> 0:07:45.520 that a lot of producers had to shut in well 0:07:45.640 --> 0:07:48.880 shut in production, and production has dropped off considerably. We've 0:07:48.920 --> 0:07:52.440 heard reports of up to you know, of some of 0:07:52.480 --> 0:07:55.560 the production out in Permian might be shut in occidental. 0:07:55.680 --> 0:07:57.840 Some other companies have announced that they've had to shut 0:07:57.920 --> 0:08:00.640 significant parts of their operations as well. So let's pause 0:08:00.680 --> 0:08:02.160 there for a second. And you know, we said to 0:08:02.200 --> 0:08:04.080 the top we're going to talk about building back better. 0:08:04.320 --> 0:08:07.360 So one issue I guess we've uncovered is supply what 0:08:07.440 --> 0:08:09.480 would it mean to build back better here, bury the 0:08:09.560 --> 0:08:12.000 pipes or how else would they weatherize them? And would 0:08:12.000 --> 0:08:13.600 it be worth it? So I think one of the 0:08:13.680 --> 0:08:16.000 big questions here is just how do you solve this, 0:08:16.080 --> 0:08:18.120 Like what's the what's the answer to this problem to 0:08:18.160 --> 0:08:20.560 make sure it doesn't happen again. And one of the 0:08:20.640 --> 0:08:24.240 things that I think both regulators, policy makers, oil and 0:08:24.280 --> 0:08:27.240 gas companies themselves, power companies will have to determine is 0:08:27.760 --> 0:08:30.480 what's the likelihood of this type of event to happen again, 0:08:30.640 --> 0:08:34.000 Like what's the necessity to build back better or to 0:08:34.080 --> 0:08:37.280 significantly change the infrastructure. Because there are things that can 0:08:37.320 --> 0:08:39.400 be done from the oil and gas perspective, you could 0:08:39.720 --> 0:08:43.640 insulate pipes, bury them, weatherize equipment. All of that is 0:08:43.679 --> 0:08:46.040 fairly costly. It has a lot of capital expense. You 0:08:46.080 --> 0:08:48.439 think about pipelines especially, I mean some of them are small, 0:08:48.840 --> 0:08:51.640 but some can go hundreds thousands of miles right, So 0:08:51.920 --> 0:08:55.120 to instigate reform at that level is going to be 0:08:55.240 --> 0:08:58.640 a huge investment in infrastructure. Um. And this is oil 0:08:58.640 --> 0:09:01.360 and gas infrastructure that's trying to cut back on capital 0:09:01.480 --> 0:09:04.319 cost not grow them. In general, you know, there's a 0:09:04.360 --> 0:09:08.040 lot of hesitancy to even invest in new pipelines updated 0:09:08.080 --> 0:09:10.400 pipelines anyways. So whether or not you want to put 0:09:10.400 --> 0:09:13.040 all that money into investing in this infrastructure if this 0:09:13.200 --> 0:09:15.959 is a once in a hundred year storm, um, it's 0:09:16.000 --> 0:09:19.520 unclear if that will be worthwhile. But there are maybe 0:09:19.720 --> 0:09:22.000 things on the especially on the oil and gas side, 0:09:22.040 --> 0:09:24.199 that you could do that could help at least alleviate it. 0:09:24.320 --> 0:09:26.760 Like one thing is Nick mentioned is there's a lot 0:09:26.800 --> 0:09:29.240 of policies and emergency measures being called in on the 0:09:29.280 --> 0:09:33.200 gas side to prioritize different customer bases. So like if 0:09:33.240 --> 0:09:35.559 you think about US natural gas, sure it goes to 0:09:35.640 --> 0:09:38.679 power homes for heating, it goes to electricity generation. But 0:09:38.800 --> 0:09:41.360 we also have sizeable markets for exports, both pipelines to 0:09:41.440 --> 0:09:44.719 Mexico export via l n G terminals. A lot of 0:09:44.800 --> 0:09:48.800 industrial facilities utilized natural gas. Texas exports a lot of 0:09:48.800 --> 0:09:51.880 it out of state. Two places like California, the governor 0:09:52.040 --> 0:09:54.080 and the others have tried to put in emergency measures 0:09:54.120 --> 0:09:57.079 saying please like industrial facilities have kind of stopped running 0:09:57.120 --> 0:10:00.200 for the most part. We've had oil refineries. A lot 0:10:00.200 --> 0:10:02.480 of X and refineries have shut down and are returning 0:10:02.520 --> 0:10:05.280 any gas in power that they would normally use to 0:10:05.360 --> 0:10:07.839 the grid to try and help increase that supply. A 0:10:07.880 --> 0:10:10.520 lot of the l G terminals have stopped exports and 0:10:10.640 --> 0:10:14.160 any gas that they usually would receive is therefore available 0:10:14.200 --> 0:10:16.880 to the grid. Does that help if the pipes are frozen? Well, 0:10:16.960 --> 0:10:19.040 so there's two things right, Like the pipes out in 0:10:19.080 --> 0:10:21.760 the oil fields are probably frozen and having trouble getting 0:10:21.760 --> 0:10:25.160 gas back to supply. There's underground storage across the state. 0:10:25.320 --> 0:10:28.560 There are major pipelines that are underground and better protected. 0:10:29.040 --> 0:10:32.560 So there is some flexibility within the system where gas 0:10:32.679 --> 0:10:34.760 can move. And that is that I think the question 0:10:34.840 --> 0:10:37.120 if any gas that is available should be prioritized to 0:10:37.200 --> 0:10:40.160 the customers that needed essentially, so if we're talking about 0:10:40.200 --> 0:10:43.520 frozen gas lines, you know, getting too gas plants, it's 0:10:43.559 --> 0:10:47.520 not necessarily like at the plant itself, but it's somewhere 0:10:47.600 --> 0:10:50.319 along the miles and miles of pipeline that's blocking the 0:10:50.360 --> 0:10:52.480 gas room getting to that plant most likely. Yeah, on 0:10:52.679 --> 0:10:55.240 natural gas. Another key thing to remember too is that 0:10:55.480 --> 0:10:58.680 the water vapor is only present in the gas until 0:10:58.760 --> 0:11:01.920 it's processed. Once natural gas is processed at a processing plant, 0:11:01.960 --> 0:11:04.079 which is usually pretty close to the oil field itself, 0:11:04.679 --> 0:11:07.720 then it becomes almost pure methane or pipeline spec methane 0:11:08.320 --> 0:11:11.320 that is not going to freeze as easily at current temperatures. Right. 0:11:11.400 --> 0:11:14.559 The trouble is when it's still towards the wellhead mixed 0:11:14.600 --> 0:11:16.920 with water, that water vapor freezes and then you have 0:11:17.280 --> 0:11:19.079 sort of a slushy mix trying to flow through this 0:11:19.160 --> 0:11:21.400 pipe of sort of froze some of your frozen water. 0:11:21.520 --> 0:11:24.439 And some natural gas oil pipelines have also seen some 0:11:24.559 --> 0:11:27.920 freezing issues where the oil thickens or starts to freeze, 0:11:28.080 --> 0:11:30.079 and so therefore some a lot of oil pipelines have 0:11:30.120 --> 0:11:33.040 stopped flowing. But on the natural gas side. Once you're 0:11:33.040 --> 0:11:35.120 talking about pipelines kind of closer to the city center 0:11:35.240 --> 0:11:38.000 near the demand markets, those are probably able to flow 0:11:38.040 --> 0:11:40.079 any gas that is in them, but it's probably just 0:11:40.160 --> 0:11:42.880 not reaching that far because of the freezing at the 0:11:42.960 --> 0:11:46.199 source exactly, And any any gas that does get there, 0:11:46.240 --> 0:11:48.360 you want to make sure it's available for home heating 0:11:48.440 --> 0:11:51.160 and power gen and sort of the two prioritized uses 0:11:51.240 --> 0:11:54.199 for it. And I like your point that investors and 0:11:54.280 --> 0:11:57.640 regulators are going to have to decide whether this is 0:11:58.240 --> 0:11:59.880 going to in the future going to be a likely 0:12:00.720 --> 0:12:03.800 enough occurrence to invest in these things. Texas an interesting 0:12:03.800 --> 0:12:06.239 situation on the power side because it's such a deregulated 0:12:06.280 --> 0:12:09.640 power market relative to the other regions that if things 0:12:09.720 --> 0:12:13.760 proceed as normal and regulators don't step in and start 0:12:13.840 --> 0:12:16.280 to require any of this stuff, the way the market 0:12:16.880 --> 0:12:20.640 bakes in this probability is through power presses. So power 0:12:20.720 --> 0:12:23.040 presses are at their cap right now, but basically nine 0:12:23.080 --> 0:12:26.400 thousand dollars for the last few days. Generators that are 0:12:26.440 --> 0:12:29.520 able to survive this are making years worth of revenue 0:12:30.040 --> 0:12:33.640 in just these few days. And if the market stays 0:12:33.880 --> 0:12:36.280 as is, you know, if something there's no major overall 0:12:36.320 --> 0:12:39.760 of the market going forward, Investors the only these power 0:12:39.840 --> 0:12:43.720 plants will say, maybe it's worth paying five percent more 0:12:44.640 --> 0:12:48.760 for our Win turbine kit to have a heater that 0:12:49.000 --> 0:12:53.240 can heat the blades and help us capture those price 0:12:53.280 --> 0:12:55.959 spikes when they happen. What's it going to be once 0:12:56.000 --> 0:12:57.719 every ten years? I don't I don't know, but that's 0:12:57.760 --> 0:12:59.640 the math that there the probability that they're going to 0:12:59.679 --> 0:13:02.480 be looking at. We could also see, of course, regulators 0:13:02.520 --> 0:13:05.319 come in and just mandate something in PGM. In the 0:13:05.520 --> 0:13:09.920 mid Atlantic, in the Northeast US power markets, gas power 0:13:10.000 --> 0:13:13.520 plants are mandated for reliability purposes to have oil tanks 0:13:13.559 --> 0:13:16.079 on site so one to five days of oil, and 0:13:16.240 --> 0:13:17.960 also the gas ruins have to be able to burn 0:13:18.040 --> 0:13:22.880 that oil. So there's there's also regulatory measures that could 0:13:22.920 --> 0:13:25.439 require plans to do those types of things. But investors, 0:13:25.720 --> 0:13:27.480 like I said, might also just choose to do it 0:13:27.880 --> 0:13:30.200 in arcot to be able to be available during these 0:13:30.240 --> 0:13:33.280 times and capitalize on really expensive power. And let's not 0:13:33.360 --> 0:13:36.679 forget this is Texas, right, It's pride itself on not 0:13:36.880 --> 0:13:39.000 too much regulation. Has there been a hint of which 0:13:39.040 --> 0:13:42.040 way it's likely to go? In investor driven or regulation driven. 0:13:42.160 --> 0:13:43.760 There's a lot of debate about it. There's a lot 0:13:43.760 --> 0:13:46.199 of philosophical debate about the markets, and there there was 0:13:46.280 --> 0:13:50.599 even before this event. But we're still really dissecting what 0:13:50.800 --> 0:13:54.160 exactly happened. Orcott really hasn't released all that much information. 0:13:54.280 --> 0:13:57.160 I think they're busy taking care of get just getting 0:13:57.200 --> 0:14:01.120 people power as soon as possible, but it soon after. 0:14:01.240 --> 0:14:03.440 I think there will be a really really good debate 0:14:03.520 --> 0:14:07.959 about planning for this this winter going into it, and 0:14:08.040 --> 0:14:10.760 then the physical effects of the storm on the power plants, 0:14:10.800 --> 0:14:14.000 and and which plants better. Right now, it's not obvious 0:14:14.080 --> 0:14:18.960 that one one particular plant was really guilty of failing 0:14:19.040 --> 0:14:26.280 more than any other. So we've talked about supply, We've 0:14:26.280 --> 0:14:29.240 talked about power plants and making those a bit more resilient, 0:14:29.600 --> 0:14:33.480 and the decision whether to regulate or invest in resiliency. 0:14:33.600 --> 0:14:36.840 We should probably talk a minute about Texas as an island. 0:14:37.120 --> 0:14:39.520 You know, they probably could have solved this if they 0:14:39.560 --> 0:14:42.960 were connected to another source of power, another market. Is 0:14:43.000 --> 0:14:45.320 that is that fair to say? It is? There's very 0:14:45.400 --> 0:14:49.400 little electrical connection to the neighboring grids. Is a priority 0:14:49.480 --> 0:14:53.360 of the Biden administration to harden the transmission, the US 0:14:53.400 --> 0:15:00.400 Transmission Network improve electrical resiliency. Texas has kept did that 0:15:00.520 --> 0:15:03.800 way for you know, as long as they could. They 0:15:04.920 --> 0:15:08.880 benefit from not having to be regulated by the federal 0:15:09.240 --> 0:15:13.800 the Federal regulator FIRK, because they don't exchange much power 0:15:13.920 --> 0:15:18.080 with with their neighbors and so we could see more interconnection. 0:15:18.160 --> 0:15:21.120 It definitely would have helped to be more interconnected with 0:15:21.720 --> 0:15:23.920 with the neighboring regions. It would have just been more 0:15:23.960 --> 0:15:28.560 supply that was available into the market when basically of 0:15:28.600 --> 0:15:31.880 the fleet was offline and they were had this this 0:15:32.200 --> 0:15:35.880 unprecedented capacity short falls. At the same time, like I said, 0:15:36.160 --> 0:15:39.640 they might be reluctant to make those connections because of 0:15:39.720 --> 0:15:43.800 the because of the regulatory implications. And there's a parallel 0:15:43.880 --> 0:15:46.760 here to what happened in California last summer. There were 0:15:47.160 --> 0:15:50.440 impacts across the whole region. It wasn't just Texas. The 0:15:50.480 --> 0:15:53.520 reason we're talking about Texas today is because it was 0:15:54.080 --> 0:15:59.160 impacted the worse and the severity of the cutoffs was 0:15:59.360 --> 0:16:01.640 so extreme, and most of the millions of people that 0:16:01.640 --> 0:16:04.840 are without power are in Texas, but throughout the Midwest. 0:16:04.920 --> 0:16:07.520 This storm really took its holl and last summer when 0:16:07.520 --> 0:16:10.040 we were talking about California. It was a similar story. 0:16:10.120 --> 0:16:12.680 California was was hit really badly by the heat wave, 0:16:13.000 --> 0:16:16.160 but so were its neighbors, and so the connections between 0:16:16.720 --> 0:16:20.560 regions were a bit a little bit contentious because when 0:16:20.640 --> 0:16:24.000 one region suffering, they're not necessarily gonna be pushing power 0:16:24.120 --> 0:16:26.360 to to the other. It's hard to predict what the 0:16:26.400 --> 0:16:29.440 interconnections would really do. But I think in general there's 0:16:30.280 --> 0:16:33.800 a push to improve infrastructure and and build a more 0:16:34.080 --> 0:16:38.720 robust power I don't anticipate there'll be many regulatory changes 0:16:38.760 --> 0:16:41.000 on I haven't heard of much talk around regulatory changes 0:16:41.040 --> 0:16:42.600 on the gas side. So the things I could see 0:16:42.640 --> 0:16:46.800 happening would be requiring more winterization of gas infrastructure, and 0:16:46.880 --> 0:16:49.520 the other one would be some type of more formalized 0:16:49.520 --> 0:16:54.440 prioritization of important customers if there is a shortage of gas. Right, 0:16:54.480 --> 0:16:57.680 But that's difficult because especially if you look at Texas 0:16:57.880 --> 0:17:00.640 and US gas markets in general. At sports are sort 0:17:00.640 --> 0:17:03.160 of a major story nowadays in a major port of revenue, 0:17:03.360 --> 0:17:05.600 and it's winter, and so to say that to try 0:17:05.680 --> 0:17:08.119 and be increasing our exports of things like l en 0:17:08.200 --> 0:17:11.639 G and then to suddenly tell all the customers that 0:17:11.680 --> 0:17:14.240 are trying to buy it. Well, actually, there's also this 0:17:14.320 --> 0:17:15.920 big risk that in the middle of winter, when it 0:17:16.000 --> 0:17:18.720 might be cold in Asia and Europe, we might actually 0:17:18.720 --> 0:17:20.840 cut off that supply because we have cold here in 0:17:20.880 --> 0:17:24.399 the US. That's not a great story to customers, especially 0:17:24.400 --> 0:17:27.000 when there's already questions around the emissions associated with us 0:17:27.119 --> 0:17:29.720 L energy and you know, the cost and everything else. 0:17:29.800 --> 0:17:32.160 So I anticipate there would be a lot of pushback 0:17:32.359 --> 0:17:36.480 in terms of formally mandating sort of stay within the 0:17:36.560 --> 0:17:39.800 state or prioritization of state actors outside of a free 0:17:39.840 --> 0:17:43.119 market sort of system um and better controls in place. 0:17:43.800 --> 0:17:45.960 You can also question, you know, Texas and all the 0:17:46.040 --> 0:17:48.920 storage that is in Texas is still a major supply 0:17:49.000 --> 0:17:50.920 to other parts of the country even right and a 0:17:51.000 --> 0:17:52.440 lot of the country is having a lot of cold 0:17:52.480 --> 0:17:55.439 weather as well. So this isn't just sort of Texas 0:17:55.480 --> 0:17:57.280 as an island and you can treat it as such. 0:17:57.480 --> 0:17:59.800 You have to remember that there are other customers at 0:17:59.800 --> 0:18:01.080 the other or end of that who are also being 0:18:01.119 --> 0:18:03.800 cut off from supplies. It sounds like you're saying that 0:18:03.920 --> 0:18:08.239 the producers don't need regulators to tell them that they 0:18:08.320 --> 0:18:11.080 just missed an opportunity to sell a lot more gas. Yeah, 0:18:11.119 --> 0:18:12.720 I think that would be right. But whether or not 0:18:12.800 --> 0:18:15.719 they'll invest in winterization is another question too, because as 0:18:15.720 --> 0:18:18.280 I mentioned, a lot of producers are really really focused 0:18:18.359 --> 0:18:22.760 on cutting capital expenditure right now. Investing in new production 0:18:22.960 --> 0:18:26.680 is not a priority. Certainly investing in new infrastructure is 0:18:26.720 --> 0:18:29.560 probably not a priority. Their prioritization is debt reduction. Their 0:18:29.560 --> 0:18:34.800 prioritization is increasing cash flow, increasing dividends shareholders, And so 0:18:35.880 --> 0:18:39.080 to try and fit in, you know, increased expenditure on 0:18:39.200 --> 0:18:43.000 winterization might be also tough because they're trying to balance 0:18:43.040 --> 0:18:45.680 out whether or not they grow production five percent or 0:18:45.720 --> 0:18:49.040 two percent, let alone, you know, don't invest in new production, 0:18:49.200 --> 0:18:52.320 don't invest in new drilling, and instead invest in winter 0:18:52.400 --> 0:18:54.639 rizing existing pieces. So again that comes back to do 0:18:54.760 --> 0:18:56.159 we think this is a fluke event or is it 0:18:56.200 --> 0:18:58.600 going to happen every winter? That will I think be 0:18:58.680 --> 0:19:01.639 the deciding factor there. There's so many parallels on the 0:19:01.720 --> 0:19:05.479 power side because the market has embraced these price spikes 0:19:05.520 --> 0:19:07.920 as the signal to investors, and when they miss them, 0:19:07.960 --> 0:19:10.080 they say, these are the steps that I need to 0:19:10.119 --> 0:19:11.760 take to be able to be there and capture that 0:19:12.320 --> 0:19:15.360 that price spike. Next time. But the question going forward 0:19:15.359 --> 0:19:17.920 on the power side is just because so many people 0:19:18.000 --> 0:19:22.760 were adversely impacted and reliability is really so important for 0:19:23.280 --> 0:19:26.680 power that consumers and investors are like, I don't know 0:19:26.720 --> 0:19:28.879 if they're going to be able to tolerate this volatility 0:19:29.480 --> 0:19:31.840 going forward. So do you think there will be a 0:19:32.160 --> 0:19:34.560 policy intervention or do you think the market will figure 0:19:34.600 --> 0:19:37.080 it out itself on the power side, It's really hard 0:19:37.160 --> 0:19:42.159 to predict. Texas is the only market like this in 0:19:42.200 --> 0:19:45.760 the United States. The other or regional energy markets have 0:19:46.040 --> 0:19:48.840 have opted for a capacity market mechanism where they do 0:19:49.119 --> 0:19:53.280 pay plants just to be there and be around and 0:19:53.359 --> 0:19:55.200 do all the accounting to make sure that there's enough 0:19:55.840 --> 0:19:59.600 megawatts on that it's you know, Super Bowl Sunday, that 0:20:00.040 --> 0:20:03.240 major day where everybody's going to be pulling power, and 0:20:03.560 --> 0:20:07.520 and Texas really just leaves it to the to the price, 0:20:07.720 --> 0:20:10.639 the price opportunity for power plants to make money. So 0:20:11.160 --> 0:20:14.400 it seems like the standard way forward, if they weren't 0:20:14.440 --> 0:20:17.000 to change their market design, would be for our cot 0:20:17.600 --> 0:20:21.000 next time around, say okay, we need to in our 0:20:21.119 --> 0:20:24.399 long term planning signal that there should be more power 0:20:25.080 --> 0:20:30.160 in the winter and potentially juice up the one tool 0:20:30.240 --> 0:20:34.040 that they have, which is their scarcity adder, which adds 0:20:34.200 --> 0:20:36.879 a little bit of actually quite a lot of of 0:20:37.040 --> 0:20:40.960 potency to real time energy prices. But but that's really it. 0:20:41.240 --> 0:20:44.639 So it would still be investors just betting that that 0:20:44.760 --> 0:20:46.600 there might be a scarcity in the winter and that 0:20:46.720 --> 0:20:49.639 they could make more money during those periods selling energy 0:20:49.960 --> 0:20:52.320 as opposed to getting a direct payment for being around 0:20:52.359 --> 0:20:55.080 and being available throughout the year. In the end, the 0:20:55.200 --> 0:20:58.359 retail consumer pays for all of this, I guess right 0:20:58.720 --> 0:21:01.240 under that model, right, So it's just gonna be end 0:21:01.320 --> 0:21:03.960 up being a bunch of angry Texans with high, very 0:21:04.040 --> 0:21:06.679 high electricity bills. The actual math could be a bit 0:21:06.760 --> 0:21:10.160 hard for consumers to do. But what regulators and economists 0:21:10.200 --> 0:21:11.840