Permian Shale Boom Threatens to Overtax Electrical Grid

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Researched by Industrial Info Resources (Sugar Land, Texas)--Surging oil and natural gas drilling activity in the Permian Basin has pushed electricity demand in West Texas to record highs, creating challenges for grid reliability and prompting a slowdown in new energy projects due to inadequate transmission. Industrial Info is tracking more than $7.5 billion in active projects related to oil and natural gas production in the Permian.

Not all of the projects will go forward as planned. Industrial Info assesses projects as having a high, medium or low probability of moving forward as scheduled.

The Permian Basin reaches from just south of Lubbock, Texas, to just south of Midland and Odessa, Texas, extending into the southeastern part of New Mexico. The oil and gas boom in the Permian has created a voracious demand for power, straining the region's electric grid, which was designed to handle a fraction of the power needed by oil and gas producers that dominate the West Texas economy.

Orla, Texas, in particular, is seeing a plethora of oil and gas project activity. Industrial Info is tracking well over $3.7 billion in active projects in Orla, ranging from crude oil pipelines to natural gas processing plants. For more information, see Industrial Info's March 29, 2018, article - West Texas Ghost Town Hosts Big Oil Pipelines, Natural Gas Projects.

In Pecos, Texas, Caprock Midstream LLC (Humble, Texas) is wrapping up an expansion of its natural gas processing plant. The project involves constructing a 300 million-cubic-foot-per-day cryogenic natural gas processing train to bring plant capacity to 440 million cubic feet per day. The project kicked off in the third quarter of last year, with SNC Lavalin Group Incorporated (TSX:SNC) (Montreal, Quebec) acting as general contractor. For more information, see Industrial Info's project report.

Driving the burgeoning power demand is a shift among oil companies to forgo expensive diesel and natural gas generators to power compressors and pipelines in favor of the less-expensive option of tapping the grid.

In its 2017 Report on Existing and Potential Electric System Constraints and Needs, the Electric Reliability Council of Texas (ERCOT) (Austin, Texas), which oversees 90% of the state's grid, said an unprecedented spike in electricity consumption, coupled with insufficient transmission, have slowed the development of new projects, such as sand mines, that support the energy industry. Excessive demand on a limited system also threatens the grid's reliability in West Texas and could lead to blackouts caused by the voltage overload.

"To say that this is load growth like we have not experienced before is kind of an understatement," said Jeff Billo, ERCOT's senior manager of transmission planning, told Industrial Info. "There is not an area in ERCOT that has seen that kind of load growth before. That is unheard of."

Three utilities--Oncor Electric Delivery Company LLC (Dallas, Texas), Texas-New Mexico Power Company (TNMP) (Fort Worth, Texas), a subsidiary of PNM Resources Electric Services Company (NYSE:PNM) (Albuquerque, New Mexico), and AEP Texas (Corpus Christi, Texas), a unit of American Electric Power Company Incorporated (NYSE:AEP) (Columbus, Ohio)--serve most of the areas close to the Permian. According to ERCOT, peak electricity demand has jumped from 22 MW in 2010 to more than 200 MW in 2016 in the region. It is projected to exceed 500 MW by 2021 and by 2022, and power demand in the Permian is expected to climb to 1,000 MW, according to the Energy Information Administration (Washington, D.C.). A single megawatt can power about 200 homes on a hot Texas day.

Click on the image at right for a chart showing ERCOT's peak power demand by year in far West Texas.

With that in mind, Oncor is seeking approval to expedite two transmission projects--costing an estimated $223.6 million--to meet the skyrocketing demand. The utility's service territory is in the heart of the West Texas energy boom. Its eastern boundary is near Sweetwater, Texas--a mecca for wind power--and it stretches west to Midland and Odessa, the largest cities in the region and hubs for drilling.

Last month, Sempra Energy (NYSE:SRE) (San Diego, California), completed the $9.45 billion acquisition of Energy Future Holdings Corporation (Dallas, Texas), which includes Oncor. The transaction, after a green light from state regulators and a Delaware-based bankruptcy court overseeing Energy Future's Chapter 11 reorganization, creates a utility holding company with the largest U.S. customer base and represents Sempra's first foray into Texas. See Industrial Info's March 12, 2018, article - Texas Opens Door for Sempra Energy's $9.45 Billion Purchase of Oncor for more information.

Among Oncor's largest projects is the $336 million Far West Texas Project, which includes converting 69-kilovolt (kV) transmission lines to 138 kV, as well as constructing new, 138-kV transmission lines in the western part of the state. Larger portions of the project include the expansion of the Riverton substation near Orla, to accommodate new transmission lines between the Riverton and Moss substations, and Riverton and Sand Lake substations. For more information, see Industrial Info's project reports on the substation expansion, Riverton-Moss line, and Riverton-Sand Lake line.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle TM, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com