(Bloomberg) – Oil and gas producers’ swelling power needs are hitting the West Texas region just as technology companies target the world’s most productive shale basin for data centers, sending electricity demand soaring.
Image: Diamondback Energy
The top boss at Diamondback Energy Inc., one of the Permian basin’s largest producers, predicts his company’s need for power will double over the next decade, even if it keeps production flat. Citigroup Inc. analysts warned Thursday that the region could even face outages next summer.
“Electricity consumption for the Permian has just gone through the roof,” Diamondback Chief Executive Officer Kaes Van’t Hof said in an interview published Wednesday by the Federal Reserve Bank of Dallas. “It’s only gone up every year.”
That explosive jump in demand makes the Permian an extreme example of the growing need for electricity in much of the US. Consumption has been building in the West Texas oil fields for years as companies swap out legacy diesel-powered drilling rigs and frac pumps for more efficient electrified gear. Now the trend is being supercharged by development of data centers.
Executives from Texas’s electric grid operator and state utility regulator spoke this week before the Texas House State Affairs committee about the need for more transmission lines in the region.
They “argued the Permian buildout is needed for existing oil and gas demand and reliability regardless of data centers,” Citigroup analysts Ryan Levine and Amber Zhao wrote Thursday in a note to investors after monitoring the legislative meeting.
“Far West Texas could face rotating outages as early as next summer.”
Pipeline owners and oilfield service providers are also racing to expand their offerings to serve data centers. Meantime, producers such as Diamondback have looked to build microgrids to help power their frack gear, Van’t Hof told the Dallas Fed. The rapid pace of drilling expansion in the Permian over the past decade has led to an average wait time of 950 days to get connected to the grid, he said.
Fortunately for producers and data centers in need of electricity, they have prime access to seemingly bottomless reserves of natural gas, which is produced as a byproduct of oil. Even if oil production levels off in the Permian, rising gas-to-oil ratios from drilling activity mean the basin will continue to be the fastest-growing major gas-producing basin for years to come, without operators even intending to produce gas.
Peak power demand on Texas’s primary power grid, the Electric Reliability Council of Texas, may challenge all-time records this week as a blistering heat wave pushes homes and businesses to ramp up their air-conditioning needs. With wind generation expected to weaken as power demand ramps up, Ercot will turn to gas generators and batteries to fill in the gap.
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