ELECTRICITY

Thirst for power leaves oil industry seeking solutions in West Texas

Even before the extent of this year's drop in crude prices became clear, Texas oil producers had some reason to fret.

They need electricity, and access can be scarce at far-flung sites in West Texas.

So as the Gulf Coast Power Association (GCPA) gathered for a fall conference Sept. 30, the oil patch was the topic of an afternoon session. It was the same day a U.S. oil benchmark fell more than $3 a barrel, foreshadowing a sustained price decline. The power meeting was focused on seeking electricity for oil developments and the costs that come with a congested system.

"Putting our wells and having our facilities on commercial power is extremely crucial to our business and our continued ability to drill and produce in this state," Toni Gordon of Pioneer Natural Resources Co. told the crowd in Austin, Texas, that day.

Electricity is used in a number of operations, including with oil well pumping units, saltwater disposal pumps, tank batteries, gas processing facilities and water treatment locations, Irving, Texas-based Pioneer said in a slide presentation at the GCPA event.

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Oil and gas producers have faced a series of challenges, according to Pioneer. That includes long utility response times to notifications of load growth while distribution lines and substations can be at or near capacity.

To make sure power is available, companies may turn to less desirable and more costly options than hooking to the grid, such as using diesel generators. Some companies look to establish their own infrastructure.

The Electric Reliability Council of Texas (ERCOT), the state's main grid operator, is aware of the issues. It plans a new study of West Texas' potential load growth and transmission infrastructure, according to Warren Lasher, director of system planning at ERCOT.

"The oil and gas industry is just growing so fast that it's difficult to keep up with them from a transmission infrastructure perspective," Lasher said in a recent interview.

Working off different timelines is one issue, as companies look for remedies while new infrastructure often can't be built immediately. Lasher said solutions such as enhancing a line can happen more quickly, but processes that lead to construction of a new transmission line can take several years.

Adding generation wouldn't necessarily solve the problem. A number of loads are small enough that it isn't cost-effective to have on-site electric production, Lasher said, while electric generation would need to be developed by investors under the Texas market setup.

It's not clear that building a new plant in West Texas would solve a lot of the issues because of the network, he said.

"It's almost like you're in a neighborhood and ... all the streets are clogged up with too much traffic," Lasher said.

Prices decline

The lower price for oil remains a wild card for the industry and its power needs. After topping $100 a barrel in late July, benchmark U.S. oil faltered and has been trading in recent days for less than $80 a barrel.

The tumble occurred as increased production from the United States and Libya has more than offset growth in global demand tied to areas such as Asia and the Middle East, according to James Williams, an energy economist who runs WTRG Economics in London, Ark. Lower prices depress revenue that can fuel spending.

"Unless oil prices recover, there's going to be less drilling for oil in 2015 than there was in 2014," Williams said in a recent interview. That means production growth could be slower than it was, he said.

If oil prices fall another $15 a barrel or so, Williams said, U.S. production growth might halt. Companies would continue to drill, but perhaps not enough to replace declines.

While shifting oil prices may alter some dynamics, the session at the GCPA conference sought to address ongoing issues for producers.

Peak demand in a West Texas zone surged 25 percent to about 2,173 megawatts in 2012, compared with 1,740 MW in 2009, according to ERCOT. And further increases occurred in years that followed.

Companies sometimes seek to keep well results quiet as they test an area. Pioneer's Gordon said the industry has improved some of its forecasting now that certain areas are under leaseholds, although issues still can arise.

Gordon said high congestion should tell power officials "that we do have a serious problem that needs to be addressed, that our systems are overloaded and close to max capacity."

ERCOT sought to explain the situation in a 2012 fact sheet when it said congestion can occur when power that's provided to a location surpasses the capacity of a transmission system to deliver it efficiently. With congestion, less-efficient plants can go online.

"Those units cost more to run, which increases the costs to provide power in the region," ERCOT said in its fact sheet.

Using units that are less efficient affects the so-called load-zone price of power in the real-time market, ERCOT said. Customers sometimes pay a price per kilowatt-hour along with the difference between load-zone and hub prices, known as a congestion or delivery cost.

Investment planned

John Bick, managing principal with Priority Power Management LLC, said his firm works with oil and gas clients to help meet electrical demands. While some spending cutbacks may occur, he said many companies plan to press ahead in adding power load. Priority Power helps clients examine supply and infrastructure.

"We look at both of those in conjunction with what their drilling and production schedules look like over, say, a three- to five-year forecast horizon," Bick said, adding that possibly working with a utility is compared with potential private construction.

While access to power is a key issue, pricing has been a flashpoint in the past. ERCOT's west zone had a congestion price premium of nearly $11 per megawatt-hour in 2012 compared with other zones, according to Priority Power. That has dropped to less than $2 per MWh in 2014, the firm said in a recent presentation based on average figures.

Last month, Oncor Electric Delivery Co. noted in a slide presentation for a GCPA gathering that the use of horizontal drilling has increased the need for power as more wells can be placed at a location and higher production can occur.

And this month, Oncor discussed plans to improve infrastructure in West Texas, with more than $1 billion to be invested over four years.

"By enhancing infrastructure and ensuring adequate capabilities, we are helping to protect the strong Texas economy and the vital natural resources for the entire country," Bob Shapard, CEO of the transmission and distribution provider, said in a statement dated Nov. 5.

In an emailed statement, ERCOT also said many of the challenges are happening in lower-voltage parts of the transmission system as power use surpasses capacity after past construction of 345-kilovolt infrastructure.

Lasher said ERCOT's study of West Texas may help with lessons for use in other parts of the state. Observers are watching the region of South Texas known for the Eagle Ford Shale, as it hasn't seen the same sort of congestion found in West Texas.

At the GCPA event Sept. 30, the Guadalupe Valley Electric Cooperative indicated that it tries to work with producers to find solutions to get lines up and power flowing. Its service area includes some Eagle Ford developments.

"If they're running diesel generators, that means we're not selling them power," CEO Darren Schauer told the audience.

Priority Power's Bick said his firm looks at options to find the best path forward for its clients.

"Our sole interest is to find the solution to our customer's business challenge," he said. "And if it makes better sense for the utility to do it, then that's the answer. If it makes better sense to build private, then we will do that on behalf of the customer."

Reporter Mike Lee contributed.

Twitter: @edward_klump | Email: eklump@eenews.net

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