With the US imposing 25% tariffs on imports from Mexico and Canada from Tuesday, concerns have been raised about the policy’s impact on the US grid near the Mexican border.
Tariffs limit access to essential electrical components, making it more difficult for key energy states such as Texas to keep developing the resilient power grid it needs.
The southern state is a leader in the US when it comes to conventional and new energy developments – and it wants to double power generation by 2030.
But new charges on steel and aluminium will raise prices of a specialised steel product called grain-oriented electrical steel, which is used in transformers, elevating the price of transformers made in the US.
The Electric Reliability Council of Texas (ERCOT) has only avoided a repeat of the Winter Storm Uri disaster in 2021 thanks to greater electricity generation, which rose by 70 terawatt hours (TWh) from 2021 to 2024 even as coal use declined.
Advanced energy technologies, such as solar, wind, and battery storage, accounted for 91% of new electricity generation capacity from March 2021 to December 2024, although ERCOT’s natural gas generation also rose significantly.
In a joint paper, David Goldwyn, President of Goldwyn Global Strategies, Chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group, and former special envoy coordinating international energy affairs at the US State Department, and Joseph Webster, Senior fellow at the Atlantic Council, have explored the implications of tariffs on the electricity sector.
“If Texas is unable to construct new incremental electricity generation, particularly for peak summer demand, Houston and the entire state could be plunged into crisis after crisis. Unreliable power is sure to drive away businesses,” they write.
“Data centres require uninterruptible power supplies, so any outages in the Lone Star state, or even the credible threat of outages, will render it less attractive to artificial intelligence and technology companies.” Click here to read more on changing energy and grid build-out prospects.
Manufacturers, aware that Texas’s electricity outage in 2021 caused severe supply-chain disruptions to chip production, will look to other locations if ERCOT’s reliability is in question.
Moreover, any unreliability on the Texas grid could have both national and global energy security implications, the authors note.
“Disruptions to the Texas electricity grid harm oil and gas production and constrain natural gas pipeline shipments to liquefied natural gas (LNG) terminals, including to Freeport LNG, which is notably grid-connected. The last thing LNG developers looking for new long-term contracts need is another headwind, in addition to the threat of tariffs and hurricanes.”
Cheniere Energy recently produced the first liquefied natural gas (LNG) at the first train of its Corpus Christi stage three liquefaction project in Texas. The third stage of the Corpus Christi project consists of seven mid-scale trains, with an expected total production capacity of over 10 million tonnes per annum of LNG.
At the same time, any shortage of transformers and other electrical components will make it much harder to recover from storms.
In summer 2024, millions of individuals in Houston went days without power due to Hurricane Beryl, which did not even directly impact the city. Future outages could be much worse if transformers and other electrical components are subject to artificial scarcity from tariffs.
“With power demand and new generation requirements on the rise, Texas does not need a tax that drives up the cost of the buildout, weakens the resilience of the grid, and poses reliability risks to the oil and gas industry. Tariffs on transformers and other electrical components will make it considerably harder for the US to achieve energy dominance and could prove costly for Texas.”
The state has a range of projects in progress.
Avina Clean Hydrogen (Avina) has completed the front-end engineering and design (FEED) for its 800,000 tonne-per-annum clean ammonia facility in the Texas Gulf Coast and is targeting a final investment decision (FID) later this year.
Global engineering company Worley has been awarded an engineering, procurement, and construction (EPC) contract for ExxonMobil’s Baytown, Texas-based low-carbon hydrogen and ammonia facility.
The Baytown facility is the largest of its type. Once in operation, it will produce up to one billion cubic feet of low-carbon hydrogen a day and more than one million tonnes of low-carbon ammonia per annum.
In December, the US Department of Energy (DOE) announced $6m in funding for a Texas-based project that will transport carbon dioxide (CO2) from onshore industrial and power generation facilities to offshore geologic storage sites.
Expected to connect several CO2 sources from industrial and power facilities around the Port of Corpus Christi to nearby offshore permanent storage sites, the project builds upon a pre-front-end engineering and design (FEED) study.
