Ensuring adequate power for Permian oil field operations has been increasingly challenging. Operators are seeing longer lead times to get power, higher cost of infrastructure and power outage issues.

This article reviews utility challenges and solutions and explores more collaborative opportunities, both with utilities and neighboring O&G operators – to challenge how O&G operators think about power for the oil patch.

Facts:

  • The Electric Reliability Council of Texas  (ERCOT) reported in July that West Texas power use increased by nearly 250 megawatts over the previous year due to increased oil and gas activity and is trending upward.
  • On May 10 power use in West Texas exceeded 3,400 megawatts (3.4 gigawatts) for the first time. (One megawatt powers 200 homes, and one gigawatt = one nuclear power plant or 680,000 homes.)
  • New projects such as sand mines and gas plants create excessive peak demand on a limited capacity system and can threaten the grid’s reliability in West Texas
  • Three utilities (Oncor, AEP Texas and Texas-New Mexico Power) provide most of the regions electrical power covering the 24,000 square miles of the Permian Basin.
  • Dallas-based Oncor has expedited two transmission projects, costing an estimated $223.6 million, to meet the power demand in the oil patch.
  • Texas-New Mexico Power, which has ~20,000 customers in West Texas, has seen power demand spike from about 96 megawatts in 2014 to nearly 250 megawatts last year.
  • Oncor expects the Permian's power demand to grow 300% in the next five years.

So, as oil and gas operators proceed with surface infrastructure, what are the issues and solutions for wells that need electric power?

First is an understanding that electric utilities want to help, but utilities are power people and have constrains on what they can provide to industrial customers. Likewise, oil and gas operators are fluid and pipe people and not power people, even though utilities and O&G operators have a general understanding of one another.

The wire infrastructure in the oil patch is growing at an unprecedented rate.  This has led to service interruption and power outages, becoming a major concern for operators and service companies alike.

To mitigate power reliability issues, O&G operators are best served by the following: 

a) Work with the utility as a partner with a common goal for power reliability. Joint efforts have shown a reduction in power outages/service interruption from a 10% to 40%increase in production output.  Over a 6-month span, for every 20 ESP wells, production losses could range from $200,000 to $450,000 in lost revenue due to electrical issues.

b) Know the infrastructure your wells are tying into, and its strengths and weaknesses to serve your wells. The utility’s ability to get easements can save 50% to 70% on construction costs. Some utilities even have their own version of land men.

c) If possible, plan well locations 6-12 months ahead of spud date.  Utilities need a much longer planning runway for construction than operators. An oil operator can use generators at $7,000 per month per ESP well or build overhead wire towards their well on their  own. Either path carries higher cost and less reliability.

d) Know the miles of wire your utility must construct as well as the miles of wire you plan to build. Power reliability is affected by how far overhead wire must travel to reach the well. That determines what additional electrical protection is needed from both utility and oil producer. Efficient planning can reduce electrical down-time by 40% to 80%.

e) Know your true horsepower loads. Conduct load analysis based on what your field is projected to be. Plan for success by accurately projecting wells at least by per section number.

Transmission distribution presents constraints and opportunities within your O&G field.

a) When you evaluate an acreage position or expanded drilling program, it’s important to know the electrical transmission/distribution maps and available horsepower capacity. 

b) Utility transmission lines are much heavier wire (running above 100,000 volts) and require a State’s public utility commission (PUC) sign-off.  Cost ranges from $800,000 to $1.5 million per mile. There can also be a year’s wait (or longer) to receive wire. In contrast, distribution wire can be completed in two weeks to 3 months with cost ranging from $60,000 to $200,000 per mile.

c) Be open to working with your fellow O&G neighbor or your utility to share the cost of construction.  That can result in  significant savings

d) If you build your own overhead electrical infrastructure, consider building to utility specification for two important reasons: It’s economically advantageous when you factor in repair cost, transformer cost, etc.  and higher reliability translates into more production/revenue for you.

Factor for sub-station availability and/or ability to build a Sub-station.

a) Power that electrifies your surface equipment will, ultimately, connect to a sub-station. Utility sub-stations are generally 10 MVA to 25 MVA, which means 10,000 to 25,000 horsepower.

b) New sub-stations generally take 18 months to complete and upgraded sub-stations take 8 to 12 months to complete.

Know the available utility easements

a) Not knowing utility easements in advance can deny a development project access to power for years (or worst case, prevent development at all).

b) Surface owners need to know a utility easement is permanent and the utility has full access (generally 30 feet wide) for distribution overhead wire -- which can run for miles.

c) For reducing time to power, consider working with the utility to run wire on the other side of the road.  That lets wire work to be done without shutting down power to existing lines and can reduce build cost by half. 

d) Work with your utility to ensure your land sections are not in protected areas or occupied by protected species. Otherwise, a utility might not have an easement pathway to provide power.

Beware the revenue risk from load shedding.

a) Utilities that invest in infrastructure to support industries, large commercial clients and an expanding residential market, look at which customers will have lower power use over time. The utility may seek other ways to pay for infrastructure or generation costs that could increase power costs to other customers, which can result in a drop in service, reduce available capital, and even dent the utility’s credit rating. Even if a customer commits to paying 100% of infrastructure cost, a drop in power consumption over a 5-year period could place stress on a utility’s finances. Clearly, it helps when drilling programs are more stable over longer periods such as when ESP units are combined with rod pumps. As well production drops, new wells come online to offset the drop in energy consumption.

b) The main point is the relationship between the operator’s drilling program and utility resources. Short-term, high-peak loads are costly to both parties, both economically and in long cycle times. Remember that power transmission infrastructure is designed to handle very peak hours of demand, and that out of 8600 hours in the year, only 100 hours are at peak loads. Most of the time loads are 50% lower than peak load.

Texas-size power and related gas issues

Texas’ largest coal-fired power generators, the Big Brown Plant and Sandow Plant northeast of Austin, have closed this year. The Monticello Plant also is shutting down. These three plants alone can produce 4,167 megawatts of electricity — enough to power nearly 2.1 million Texas homes.

The discount between the Waha hub in Pecos County and Henry Hub has plummeted to multi-year lows of $1.40/MMBtu. As of April 2018, the average discount is approximately $0.90/MMbtu.

Seeking Alpha forecasts the Waha discount (and increased volatility) to become the norm.  Natural gas projects can’t keep up with the YoY NG production growth for the foreseeable future.

ERCOT approved two new 345-kV transmission lines to help address the 500-megawatt load and future reliability concerns in West Texas - for a cost of $336 million.

Texas size solutions: An alternative:

So how can O&G operators help power the Permian?  Maybe it’s time for O&G companies to become on-site power companies as well.

If field gas is available, all-in cost could be $0.045 to 0.060 per KWh. Most of the Permian Basin has retail energy providers offering power contracts for $0.028 and up, based on the operator’s credit worthiness. However, true all-in cost for power (energy cost, T&D cost, Demand cost, decommissioning cost) is really in the $0.042 KWh or higher cost, even as high as $0.13per KWh right outside of Midland, TX.

So, why do long-term on-site power?

Consider the following for oil fields that are (or projected to be) gassy:

a) You get power now at industrial rate structures

b) Fewer power outages (less lost revenue).

c) Mitigate demand charges or other cost (Reduced OpEx).

d) Possibly sell power to a grid or utility (Think about selling oil, gas and electrons -- a true energy company!)

e) Reduce capital cost for electrical infrastructure

On-site power is not a new idea.  In Texas there are 2.8 Gigawatts NOT connected to the Texas grid, i.e. mobile/backup generators.

With Texas’ power requirements only forecast to grow and generation base facilities closing down, we must think like full-service energy companies.  The key is the overall gas and electrical grid system, finding ways to maximize multi-deployment of on-site power generation less than 10 megawatts - which can maintain growth within the oil patch more effectively.

 

 

Opportunities for renewables

Some operators are thinking outside of the box and looking at wind power. Texas has the largest wind portfolio in the United States at 21 gigawatts (equal to 21 nuclear power plants) and most all of these resources are in west Texas.  Wind generation is so widespread that power remains available throughout the day, with strongest power generation at night. These resources are available through a power purchase agreement (PPA) with pricing as low as 0.02 per KWh for utility scale projects.

Knowing what your utility has available and can do for you may reduce cost and cycle times to get power.  The only risk is pre-planning a further ahead.

Long-term onsite generation from 1 to 9 megawatts per site has become very affordable.  It offers a reliable way to address current power needs in the Permian.

One final thought: O&G producers are not the only ones looking to wnd for power.  In 2017 Jeff Bezos, Amazon's founder and the world's richest person, smashed a champagne bottle atop a Texas wind tower to christen it. The retail and technology behemoth is buying electricity from a 253-megawatt Amazon Wind Farm in west Texas.

Here are a few links which may be of value:

https://www.businessinsider.com/oil-wind-power-energy-investments-2016-12

https://www.wsj.com/articles/oil-giant-shell-wants-to-sell-you-electricity-1522315801

https://www.bloomberg.com/news/articles/2018-01-12/shell-braces-for-change-by-expanding-its-foothold-in-electricity

http://www.petroleum-economist.com/articles/low-carbon-energy/renewables/2018/a-big-leap-for-microgrids

For more information on TKO, and author Victor Sauers, click here.