How a Rare Cold Snap in Texas Disrupts Supply Chains

THE RESILIENT ENTERPRISE | THE RISKMETHODS BLOG
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The great state of Texas is known for its sprawling deserts, dry heat, and bootstrapping ethos. Yet early this year, it experienced some of its coldest temperatures in more than 30 years. Some areas are breaking records that are more than a century old.

Parts of Texas hit 0F° (-18C°) in the middle of February as a snowstorm rolled in. The weather warnings remained in place as a second storm battered the Lone Star State.

The storms brought normal annoyances of cold weather – higher heating bills, dead car batteries, extra layers, and so on. But this extreme cold snap caused widespread shortages, disruptions, and energy price increases. In short, it wreaked havoc in a part of the country ill-prepared for frigid temps.

  • Industrial disruption, production shutdowns. The back-to-back storms were accompanied by frigid temperatures. As a result, electrical and water supply disruptions have severely impacted many industries, such as agriculture, petroleum, chemicals, and energy. Although these outages and shortages are temporary, their impacts are deep and will reverberate for an unknown duration.
  • Wide-scale power outages lasting nearly a week. Two kinds of power outages crippled the state. First are mass outages due to freezing gas lines and wind turbines. Next came rolling outages initiated by the state's power grid operator, the Electric Reliability Council of Texas, to ration the electrical supply. Texas does not and cannot “plug” into its neighboring states’ grids, even in emergencies such as this. As a result, electrical supply is severely low, demand is high, and energy prices have skyrocketed.
  • Burst pipes, offline water treatment facilities lead to water shortages. In Texas, many pipes supplying water from source to consumption were not properly insulated. This led to frozen and burst pipes in homes, businesses, and critical infrastructure (e.g., hospitals). In other cases, electrical supply issues have knocked water treatment facilities offline. This resulted in low water pressure and “boil water” advisories for up to seven million Texans.
  • Transportation problems. Uncleared or untreated roads and highways are always treacherous for drivers. Fatal crashes and closures are the consequences. Thousands of flights in and out of the state were cancelled, further hindering interstate commerce and travel. Municipalities and utilities companies in Texas are simply not used to mitigating such extreme weather events. They did not plan for them, and as a result were not prepared for them.

Major Industries Affected

Petroleum and Chemicals

Texas is a national leader in petroleum extraction, refining, and chemical products production. The state is also a global leader in the closely related petrochemical industry. The oil-rich Permian Basin in west Texas, the nation’s largest oil field, has been a juggernaut for daily oil production. In colder oil- and gas-producing regions, well heads and pipelines are buried and insulated from frigid temperatures.

Unfortunately, well heads and pipelines in Texas are placed at ground level, where they have frozen. As a result, oil production from the Texas side of the Basin alone fell by as much as 80%, to between 600,000 and 700,000 barrels a day. Nationwide, the country’s daily oil production fell by 40%, to just four million barrels a day. Refinery capacity will also take a major hit in Texas. Production at five major oil refineries was shuttered or throttled back due to the storm.

As a result of these impacts to petroleum extraction, transportation, and refinement, analysts anticipate rising market prices due to temporary shortages of raw materials. This is on top of an already 13-month high for oil prices.

Agriculture

Like everything else in Texas, its agricultural industry is massive. As of December 2020, Texas had the nation’s largest number of cattle in their feedlots. It had the fifth largest dairy herd, and was the nation’s sixth-largest chicken producer. All of these are now at risk.

The storms and frigid temps have had multiple, severe impacts on the local agricultural industry – from farm to table. Temperatures dropped to lethal levels, putting livestock in immediate risk of exposure.

Water and gas pipes across the agricultural value chain have frozen. Dairy farmers have had to dump upwards of $8 million of milk a day. Their dairy processors have been unable to power or heat their facilities. Feedstock supplies are running low, and deliveries are uneven due to the conditions. Meat and dairy products are not making their way to distributors.

In many cases, bare shelves in grocery stores are reminiscent of the frantic early days of the COVID-19 pandemic. Indeed, food insecurity is such a concern now in Texas that the Agriculture Commissioner, Sid Miller, issued a “red alert.” He requests that Governor Greg Abbott declare agricultural businesses as part of the state’s critical infrastructure.

This would enable farms and processing plants to receive emergency gas and electricity supplies. Otherwise, the impact to the food supply chain could be greater than anything we’ve seen since before the pandemic.

How does The riskmethods Solution help?

The fluke snow storms and deep freeze that brought the American southwest to its knees will become a more regular occurrence. Climate change is unfortunately here to stay. It will only intensify and diversify in the ways that it impacts regions and industries that were previously insulated against such extreme weather events.

As Texas scratches and claws its way out of this mess, now’s the time to prevent or mitigate the devastating business impacts of the next climate- or weather-related disaster. Here’s how riskmethods can help.

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  • Be risk aware

Using The riskmethods Solution, you can visualize your supply chain. You understand at a glance whether you have business partners operating in regions hit by risks such as natural disasters. Our artificial intelligence-driven engine continuously monitors your supply chain for risk of any kind.

You receive instant notifications if one of your Texas-based vendors is facing issues. Risks are also displayed on the riskmethods world map, so you immediately see what is transpiring across global supply chains.

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  • React faster

Using riskmethods’ real-time information, you can be the first to react to the kinds of irregularities occurring in Texas. In this case, you receive early warning signs of distress in the supply chain and information about events that can trigger price rises.

For future events, we’ll enable you to be agile and responsive to sudden market changes. You can secure your raw materials from other sources and avoid rising market prices before everyone else. Use your prepared action plans to coordinate and streamline your risk reaction to save critical time.

  • Be proactive

Finally, with climate change, we will see these events more frequently. Areas that historically did not see such severe weather events including ultra-cold fronts or winter storms, will be drastically impacted.

Make sure you proactively prepare contingency plans for scenarios like these. You will know exactly what to do to avoid risk from materializing, and to avoid or mitigate operational and supply disruptions. For example, drive business continuity planning, secure necessary stock, avoid rising market prices, or re-route shipments.

Final Thoughts

Ultimately, the goal for any organization faced with extreme challenges is resilience. You can’t necessarily avoid these kinds of severe weather events. But you can be better prepared for them. You can be risk-aware, informed and agile enough to make changes to business plans, when the very survival of the business is at stake.

Ten Big Ideas for Greater Supply Chain Resilience in 2021

Looking for more ways to become risk aware? Find new perspectives in our whitepaper. Fill out the form to download.
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