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That's an interesting question, and the answer is very different today than it would have been ten years ago before everything went electronic. Today because of HFT and the ease to make electronic markets there are markets that have low volume but very high liquidity. Take for example QM, the crude oil eMini. Yesterday it only traded 22,000 lots but I suspect the bid-ask was 1 tick wide the entire day - it is arbitraged against CL the full size contract. So liquidity isn't 100% volume based.
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Thanks really appreciate your reply. This issue of volume v liquidity is what is confusing me. I was equating high volume with high liquidity but it seems like this may not be the case? For example, the Eurodollar has very high volume but very low margin which indicates low liquidity to me?
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They are different things. Margin is risk based and it's simplest form is a function of contract size and volatility. Volume is obviously how much a contract trades and liquidity is how efficiently you can enter and exit positions, at good times and bad. Liquidity is also trade volume dependent, trading 1 lot can be different than 1000.
Some examples
- Eurodollar has low margin, high volume and massive liquidity. Literally 1 tick wide, tens of thousands on bid and offer.
- In contrast there are many energy products that only trade over the counter. Hence if you were to look them up some of them might appear to have high volume, but for an electronic trader they have literally zero liquidity as they dont trade on screen.
- Natural Gas has something called "Bid WeeK" (last 5 business days of the month) where gas is bought and sold for the following delivery month. If you log onto ICE during bid week you will see lots of these products not only trading but also having quiet deep markets, but if you check early in the month there won't be a single quoted market. So that's a case of liquidity changing due to time of month.
- Liquidity can be heavily effected by news events. There are important data releases, employment, payroll, product in storage etc that are released at predetermined times. For Natural Gas the EIA release gas in storage on a Thursday at 10:30 Eastern. As such liquidity starts drying up at 10:28 and at 10:29.59 there's almost nothing there at all. So if you send your order exactly then you are probably going to experience massive slippage, but if you send it 1 minute later the market is more than likely be back to 1 tic wide.
- Crude Oil is very international in nature. On days where there is a European (especially British) Holiday, but not a US Holiday, you will notice lower volumes, but for most purposes liquidity is unchanged for all but the largest orders.
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I do not think it is possible to give an easy answer, eg. "yes" or "no".
My trading is mostly based on fundamental information. My interest is more towards growing commodities (eg. corn, wheat, coffee, lumber) and energies, and thus, most of my trades include these commodities. Interest rates are influenced by very many factors and events, and, thus, I think it is difficult for a beginner to trade the Eurodollar, based on fundamental data. (As long as you do not have a special education in this field.) In case you are iontereted in trading based on fundamentals, it is a good idea to start with a commodity with which you like spending many hours ...
I know traders who love trading the Eurodollar, trading based on charts. But I do not have an own opinion on this topic.
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Effective COB May 1st Tier 1/Jun'19 NG Member margin requirement drops from $1650 to $1400. Jul-Oct drop $100 to $1200 in July and $1000 for Aug-Oct.
Non Member rates are 110% of these numbers.
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For the week ending June 14, 2019 the EIA reported a 115 Bcf storage injection which was a record injection for this week of the year and the sixth consecutive 100+ Bcf injection.
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Effective close the 28th, NG Member margin requirements increase as follows
Tier 1 (August) increases $100 from $1400 to $1500
Tier 2 (September) increases $150 from $1200 to $1350
Tier 3 (October) increases $200 from $1000 to $1200 (thats 20%!)
Non member initial margin requirements will be 110% of these values.
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Effective close the 9th, NG Member margin requirements increase as follows
Tier 1 (August) increases $150 from $1500 to $1650
Tier 2 (September) increases $150 from $1350 to $1500
Non member initial margin requirements will be 110% of these values.
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Natural Gas margin going up ~ $125 effective 7/16 but it only effects Tiers 3-8 which corresponds to delivery months Oct19-Mar20.
Aug & Sep are unchanged
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36 BCF injection reported yesterday which was slightly below average and almost exactly what the market was expecting (the largest market survey had a mean expectation of 35.5). Cumulative injection for this season is still extremely high and currently the 2nd largest in over 10 years which is an interesting comparison to last year which was the 3rd lowest at this point!
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EAI reported an 87 BCF injection today which for the 2nd week in a row was a record for this week of the year. Storage at 3,606 Bcf is 511 Bcf above inventories for this time last year and 28 Bcf above the five-year average. While we have only recently superseded the 5 year average, total injections this year will probably end up as the 2nd largest on record (trailing 2014) and approximately 650 BCF more than what we injected last year!
Gas prices in the Permian Basin (West Texas) for the Balance of October are below 20c/mmBTu and for next month are under 75c/MMBtu. Most expensive gas in the country for November? Sumas (WA/Canadian Border) is $3.70, Socal Citygate (LA) $3.15, PG&E (SanFran) $3.10 and Algonquin (Boston) $3.05
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I sold my speculative long NGH C3 this week with a nice profit, and joint MRCI buying the (bearish) NGH-NGF spread. As a principle, I do not sell NG options in the Z, F, G, and H contracts.
Best regards, Myrrdin
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After being stuck in a 15c range for a month, NG has has a nice 45c/nearly 20% move in the last two weeks. Congratulations. While we have been experiencing near record high injections almost every week, this weeks 34 BCF was actually below average. While inventory has grown at the second fastest rate ever this summer, and is >500 BCF over last year, it's actually only barely above the 5 year average.
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John Kemp had some interesting Natural Gas charts in this mornings email regarding US heating demand for winter 2019/20 to be roughly -8% below the long-term seasonal average through Jan. 13: . (If your not on John's daily 'energy news' blast I would strongly recommend it. Signup Here.)
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Another smaller than historical withdrawal again this week (-115 vs -150ish). I believe this is the 6th time in 7 weeks that this has happened. Storage at 2,494 Bcf is now 612 Bcf over last year at this time and about 215 Bcf above the 5 year average.
Gas prices for most of the country are below prompt month futures. There's a 20-30c premium for the most constrained areas in the Northeast (ie New York/Transco Zone 6 and Boston/Algonquin, Iroquois) with some legs of Tennessee Pipeline pricing even higher. Other than that San Fran (PG&E) and LA (Socal CityGate) are the only other premium points at 2.65 and 2.35 respectively. At the other extreme, gas in West Texas (Permian & Waha) is 40c!
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As someone who only knows squiggly lines on charts, I'm always impressed and happy to read something about the real world. I don't know what to do about any of it, and frankly am not going to try to compete with the ones who do know.
But it is reassuring to know that there is something out there in the world and that somebody does know about it. Whatever it might mean.
Thanks.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
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@SMCJB, without giving away the farm, how comprehensive is your analysis of LNG market dynamics?
Are you checking population-Weighted Degree Days (heating/cooling) on a national level plus exports for implied demand, then daily production & imports on supply?
I've been briefing through piles of charts dealing with GFS and ECMWF forecasts for WDDs, which can lead to a decent headache, given how quickly the forecasts can change...and ECMWF is generally seen to be more accurate (i.e. year-to-date, less dramatic) than GFS. In trying to zoom out beyond N America weather dynamics, that leads to looking at ENSO data and so on, but I sure as heck don't have a "Buy here, sell here" system yet.
Some of the data scientry (sic) types pitch certain machine learning tools for forecasting, but I'm not sold on that yet...rather just pull the historical supply & demand data and try for a 'probabilistic' logic set, based on some rough visual backtesting, then try to dial it in from there without overfitting.
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Sorry for lack of reply. Not sure how I missed this. I'm a career energy trader having traded for some of the largest energy traders in the world who is now a prop trader trading for himself. While I do follow a lot of fundamentals my Natural Gas trading is not that fundamental in nature any more so the level of analysis I do is less than it was and a lot less than prop trading desks will do. I'm aware of high level LNG dynamics (actually did some work years ago with several LNG groups) but don't model them specifically. Ditto storage and weather. Most of what I follow is from publicly available information and not proprietary.
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Sorry 3rd post today, and this one isn't even 100% Natty related but since there has been more weather talk in this thread than any other I know, thought this might be interesting to the regulars....
In recent years, the accuracy of the GFS, which is America’s main forecasting model that produces predictions more than a week into the future, has fallen well behind the European model as well as the primary models run by Britain’s Met Office and, at times, Environment Canada.
This well-publicized modeling gap, which first gained prominence during Hurricane Sandy in 2012, has worsened recently, motivating Congress to provide additional funding for NOAA’s computing resources.
While the new machines will provide additional speed to run NOAA’s computer models and allow for more data to be fed into them, large differences will still remain between how NOAA operates and how the European model is researched and run each day. These differences may mean that, despite the computing upgrade, the GFS model will continue to lag behind the European in accuracy for years to come.
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Price is moving upwards because of higher temperatures, more exports and lower production. Each of these effects does not seem dramatic to me, but in sum they move the price.
Best regards, Myrrdin
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most outifts burn off excess natural gas because it is more expensive usually to contain it and resell it. it is just a manipulated price with seaonality based on how much they put back into the atmosphere out of the salt mines where they store it! at least with oil they play with the numbers using fake holding tanks and empty ships! natural gas they just open the valves and we have a shortage.
i like ng to trade with options you can get some hugemoves in the summer oh that just ended
Just wow, ... then is there a camera/satellite/sensor anything that is able to see natural gas. If so can it be positioned in the correct place to get the jump on price move. Lol
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Yes a lot of NG is flared, primarily because the pipeline capcacity doesn't exits to transport, and prices do go negative hence it makes sense to flare it rather than transport it for a loss. (There is a limit on how much you can flare though, which is why prices do go negative primarily in West Texas)
Really don't know how to respond to something like that.
Ohh I know. "Can you provide a source for your statement"?
Oh yeah. When it moves - it moves like nothing else!
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yeah people who manipulate prices always document it. you are tradign manipulations in every market that is all it really is which
doesnt change anything it just makes you understand that nothing is real in fundamentals thats all.
NG is tradeable and so was lumber at the highs.
but it has low liquiduty...so how many lots are you really doing?
most people are clueless about trading in the retail world and how mkts work in general
proof ok.. um amaranth vs centaraus yeah that was real right ha ha ha
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Okay if you don't have a source, explain your logic. The vast majority of the producers who produce NG do not have trading groups so how or why are the manipulating the price so obvously.
It was a transfer of $2B-$3B. All from Amaranth but not just to Centaurus but to JPM and Sempra as well (and every other small fish in the ocean who got to eat on the corpse). Your implication is what? It didn't happen? It was a fix? A manipulation? I don't understand?
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NG Margin increase effective September 22, 2020
Maintenance margin's increasing as follows (Note: Non-member initial margin rates will be 110% of these)
Tier 1 / Oct20 from $2550 to $2800 +$250
Tier 2 / Nov20 from $2450 to $2700 +$250
Tier 3 / Dec20 from $2275 to $2525 +$250
Tier 4 / Jan21 from $2175 to $2425 +$250
Tier 5 / Feb21 from $1900 to $2150 +$250
Tier 6 / Mar21 from $1900 to $2150 +$250
Tier 7 / Apr21 unchanged at $1050
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This is a podcast/interview with John Arnold "widely regarded as the greatest natural gas trader of all time". It's very long at over 2 hours but one of the very few times I have ever heard John talk about trading so openly. The first hour is entirely about how John got into trading, and his time at Enron and Centaurus, and why he left trading. The later 75 mins is about his philanthropic work which is also very interesting but obviously less relevant to this thread.
#125 – John Arnold: The most prolific philanthropist you may not have heard of "I always recognized the limited social value of trading. I think there is a need for someone to provide risk warehousing and liquidity to markets, but trying to tell the story about how I was adding value or contributing to society was hard. And that always bothered me." — John Arnold
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Fascinating listen- first 15 min is childhood/ growing up and then from about 18 min to 1 hour 13 min is trading and then a few min on how he got out/wind down and then his journey into philanthropy... that I will listen to when I get there in life
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NG Margin increase effective October 23, 2020
Maintenance margin's increasing as follows (Note: Non-member initial margin rates will be 110% of these)
Tier 1 / Nov20 unchanged at $3150
Tier 2 / Dec20 from $2700 to $2900 +$200
Tier 3 / Jan21 from $2525 to $2650 +$125
Tier 4 / Feb21 unchanged at $2425
Tier 5 / Mar21 from $2150 to $2300 +$150
Tier 6 / Apr21 from $1050 to $1200 +$150
Tier 7 / May21 from $1050 to $1125 +$75
Finally got around to listening to this (well, the trading part, anyway) - appreciate you sharing it.
I'm very curious though, what kind of trades he was putting on as his so-called bread and butter to make so much money? Were there truly such massive, glaring market inefficiencies in those days that he was able to just print free money year after year, or was there something else going on that he doesn't want to talk about?
He repeatedly mentions providing liquidity and warehousing risk, but his returns are absolutely astonishing. How could one guy, starting with just $8mm in capital be up 30+ percent month after month after month, doing "market making and arbitrage" type trades? Market-making and arbitrage profits are measured in ticks and basis points, but he was making well over 1 percent per day on his capital. What am I missing?
At 36:10, talking about his days at Enron, he says "I can't speak exactly about why the trading group was making so much money..." I'm genuinely curious as to why that might be.
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Printed -$0.75 for the weekend just gone... printing $1.50 for November!
Gas back then was a very different market then it is now. Arbitrage profits were not measured in ticks and basis points. At volatile times the bid ask on prompt month would be a whole penny (10 ticks). Below is a chart of the March-April spread. I haven't updated in a couple of years but I think you get the picture. This "spread" regularly moved 50c in a week back then. That's $5000 per contract and they were trading them in 500 lot blocks. Still I think your question is a good one and I don't know the answer. I know that he did have drawdowns and at one point was down 50% I believe. I also know that he was one of the biggest, if not the biggest winner, on the other side of Amaranth when they lost over $3 Billion in Natural Gas. The book "Hedge Hogs: The Cowboy Traders Behind Wall Street's Largest Hedge Fund Disaster" tells the story well. I was trading in these markets back then and while I knew there were some enormous positions on I didn't realize how large until reading that book.
With regards to the Enron comment, I honestly don't know. They did have Enron Online though, and that was printing money as fast as it could be printed. Imagine having an electronic market place similar to what we have now, but that its the only electronic market with no competition. Now imagine that the market is run by the largest trader in the market and they consistently post prices tighter than quoted on the NYMEX floor. That was Enron Online. Enron Online was so big and so effective that was how ICE as born. Five of the next 6 or 7 largest gas and power traders, formed/supported ICE as a way to counteract Enron Online. (This is obviously long before ICE bought the NYSE and even before buying the IPE). Before their demise, Enron were massive in the US Natural Gas and Power markets, dominating in a way rarely seen anymore. And before everybody screams but it was all a fraud, there was never any allegation of fraud or losses in the wholesale trading group. Bandwidth, Water, International etc yes. Wholesale trading (Enron Capital & Trade Resources or what ever it was eventually called). Never.
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Forgot the chart.
To explain, each line shows the Mar-Apr spread for a different a year. Y Axis is price, and X axis is days to expiration. Prices 500 days (2 years) before expiration start at the left, with price at expiration to the right, mostly the bottom right!
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Does any one know some good books on algo trading with mean reversion or counter trend strategies. I've heard recently that NG is great for Mean Reverting Strategies. I am kind of a newbie and I have a very limited understanding of how to code mean reverting entries and exits.
I have one that uses a dueling momentum approach. Curious if there are other ideas out there.
Futures prices for ... Henry Hub in January 2021 have fallen to just over $2.40 ... down from almost $3.50 at the end of October.
... the six-month calendar spread between ... January and July has slumped into a contango of almost 13 cents, from a backwardation of over 40 cents.
The Lower 48 states are now roughly a quarter of the way through the winter heating season ... temperatures across the Lower 48 have been warmer than normal, and heating demand has been 12% below the long-term average, according to the Climate Prediction Center.
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Just FYI, not sure if people know but cash prices went crazy for this weekend with the highest being for gas in Oklahoma at $391 (Enable), $375 (ONEOK). Yes that's nearly $400/MMBtu 100x times what they were a week ago.
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That's a good question. Here in Houston, which is the 4th largest city in the US we have temps of 16F/-9c which is the coldest in a very long time, and 57% of the city is without power due to generation outages. While 25% of wind generation is out due to freezing, thats only 1000MW of the 30000 that is off line. Apparently the generation is all off line because they can't get the gas to run it. Gas prices for HSC (Houston Ship Channel) for this weekend were $160. HSC is a large trading point, much larger than the OK points I referenced above.
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Just got this from ICE
Physical Gas Traders
CHANGES TO MAX PRICE FOR U.S. PHYSICAL GAS
Please note the max allowable price has been increased at certain U.S. physical locations listed on ICE in response to price volatility. Please contact Aaron Goetze or the Help Desk if you have any questions about this change.
Customers will need to log out of WebICE and log back in in order to see changes to the max allowable price.
I can't see cash prices but I can see financial ones. I can tell you that Bal Month (Which is Feb 17-28) HSC has traded about 0.75M MMBtu (so like 75 NYMEX equivalent) at a VWAP of just under $100 which is up from $32 on Friday. Thats the highest price I see but smaller locations (like the ones I referenced trading nearly $400 don't trade like this). Waha which is west Texas, and one of the locations that traded negative a few months back has VWAP around $75 for Bal Month. For reference Bal Month Henry Hub has traded about 350 contracts at a VWAP of $6ish which is obviously considerably lower.
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Cash trades today, for delivery Wed 17th include ONEOK trading $999 and HSC trading $400!
And just FYI this is the ERCOT (Texas Power Gird) clearing price here in Texas at 10PM, with 40+% of Texas homes (and 55% of Houston homes) without power... ($9000 is the cap, but make sure you read the 'adders'!. I believe this means ERCOT power is trading about $17000 when it normally costs $35!)
I'm currently without power for 17 hours now, but have a generator. TV and primary internet is out but we have a backup connection which is still up. Unfortunately have one broken pipe already so water in house is now off. Still this puts me in a good position versus many others.
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It looks like investment in infrastructure companies currently is a good idea. On the one hand, Mr. Biden intends to start a huge package to finance improvements of infrastructure, on the other hand there seems to be significant need for improvement of the US infrastructure.
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There is no news on how long the power outage will last. I assume until the freeze ends. Communication has been virtually non-existent from the Utility/Transmission Company (Centerpoint) or from the Grid operator (ERCOT). Local officials are very quick to point out that this is nothing to do with them and state officials being political and blaming the shift to green energy. While wind and solar do have the unfortunate effect of making the grid less stable, right now we have 4000 MW of wind offline and 20000MW of gas offline, so I think its unfair (and very political) to make the statements they are. Texas has added massive wind generation in the last decade and decommissioned other fuel types. The problem is the wind plants are all out on the plains, hundreds of miles away from the big load centers. (Austin, Dallas & Houston). At times this wind sells for negative prices but they don't care because of the government subsidies they get. Unfortunately this destabilizes the grid as wind and solar are both non-responsive. They are either on or off. No load balancing or anything like that. So it will be interesting to see what a Biden Infrastructure bill means for Texas Power. Texas is a Republican run state and they are already blaming green power solutions for the current problem. I doubt they will be open armed to make it even greener, with or without government subsidies.
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Can't we just go back to nuclear? Cleanest energy around...
Sorry about the mess you're in down there, @SMCJB, hope things get back online quickly!
Back when I lived in the Northeastern US I lost power usually once or twice a year, often for several hours but rarely more than a day. Since I moved to Germany nearly 8 years ago I haven't lost power once. Underground cables apparently withstand wind and ice storms a bit better than aboveground powerlines. Who knew?
As an aside, I'm in the midst of reading about Arnold, Hunter et al in the Hedge Hogs book you recommended. Very interesting so far, but the author certainly makes no apologies for her anti-speculative biases
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I just read another WSJ article about this situation and it was pointed out that a lot of the shutdowns were due to the fact that pipes and waterpumps froze, and that many of the natural gas wells and pipelines had to shut down because of this. What I find amazing is that the power plants apparently don't maintain any fuel reserves, or have any kind of backup plan or preventative / protective policies in place whatsoever, simply because they're cheap bastards who claim that customers insist on the lowest electricity prices possible, and wouldn't tolerate any price increases. Is this accurate? It strikes me as incredibly short-sighted. No wonder gas prices are so volatile.
For comparative purposes, I pay roughly €0.25-€0.30/kwh here, so almost triple the price of electricity in Houston, which apparently costs around $0.10/kwh(?) Back in my old home state (northeastern US) its a little over $0.20/kwh.
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Retail price for electricity in Houston has fluctuated over the last several years from 8.5c to 14c/kw but mostly in the lower end of that range. (My current 36 month contract is about 8.6c/kwh which is the lowest I have ever had). That is the all-in delivered rate. Some of that goes to my electricity provider (who I can choose) and some of that goes to the wires/transmission company (who I can NOT choose - there is only one per area). Since the wires/transmission is a legal monopoly the transmission/delivery charge is set by regulators and currently is $4.39/month + 3.744c/kw so for 1000kw/month that's approximately 4.2c/kw. Hence the actual energy charge, which is the balance of the bill, has fluctuated between say 4c and 10c/kw.
I agree that it seems like the major causes of this outage were a) Natural Gas Pipelines freezing in West Texas so there wasn't the gas available for gas plants and b) meters/valves/turbines freezing at power plants which knocked all energy types (even one nuclear plant) off the grid. Regarding on-site storage, that's only really possible with nuclear, coal and hydro. Given that Texas is predominantly Wind and Natural Gas there's probably very little on site storage.
Having grown up in England, where everything is underground (at least in Urban areas) I also find the proliferation of transmission poles with power, cable and telephone wires not only very unsightly but also a core weakness of the system. Probably a cost thing!
Currently in Houston 98.3% of people have power, with approximately 37k homes without it. Huge change from the 40% and 1.4M numbers earlier in the week. Big problem now is that virtually nobody has water since most of the water utilities do not have enough pressure to deliver water.
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Cost is definitely part of it - undergrounding requires an upfront investment that must be recouped somehow - but another big factor is the linemen and the unions who want to protect their jobs.
Still, for safety and grid security concerns it really makes sense, at least in densely populated areas, to bury those powerlines. California, in particular, should be all over this.
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