powering the permian
TRANSCRIPT
Powering the PermianThe interplay between hydrocarbon and power markets in West Texas
August 17, 2021Matthew Hoza, Senior Manager – Power Markets
Cautionary Statement
2
DISCLAIMER. THIS REPORT IS FURNISHED ON AN “AS IS”BASIS. BTU Analytics, LLC DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BTU Analytics, LLC MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BTU Analytics, LLC MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BTU Analytics, LLC BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
Key Takeaways
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• Unlike the rest of Texas, electricity demand (load) inWest Texas has been closely tied to Permian oil and gasproduction. Load has tripled over the last 10 years asPermian production has grown.
• Over the next 5 years, the Permian is expected toincrease oil production by 2 MMb/d and gas productionby 8 Bcf/d. These increases in production will continueto cause concentrated pockets of electricity demand inWest Texas.
• In response to concentrated load, quality renewableresource, and transmission buildout, developers havetargeted West Texas and developed about 11 GW ofwind and solar capacity. That accounts for a third ofERCOT’s renewable buildout.
• The concentration of renewable generation haschanged pricing dynamics in ERCOT, leading to lower,more volatile pricing, which will affect how industryplayers execute on their ESG goals.
Source: BTU Analytics
ERCOT Modeled Load in the Permian
The Permian Basin sits mostly on top of ERCOT’s Far West weather zone
4Source: BTU Analytics, ERCOT
ERCOT Far West Weather Zone
Permian Basin Extent
As Permian oil and natural gas production has boomed, demand for electricityhas gone along with it. Load in the Far West zone has more than tripled in thelast 10 years.
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GW
h/d
MM
bo
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Texas Permian Production vs ERCOT Far West Electric Load
Combined Average Daily Oil and Gas Production (LHS) Average Daily Load (RHS)
Source: BTU Analytics’ Power View, BTU Analytics’ Upstream Outlook, ERCOT
While most areas of ERCOT’s electricity demand is tied to population, the Far West has grown with the growth of hydrocarbon production
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Load
per
Cap
ita
(kW
h/y
ear)
Load per Capita in ERCOT Weather Zones
Far West West North North Central East Coast South South Central
Source: BTU Analytics’ Power View, ERCOT, US Census
The Permian shows similar concentrated pockets of electric demand thatare seen in populous cities such Houston, Dallas, Austin, and San Antonio
7Note: Modeled load for 9/15/2020, 5PMSource: BTU Analytics’ Power View, ERCOT
Modeled Load (MW)0 150
ERCOT Modeled Load
Load in the Permian has been centered around drilling activity andrelated infrastructure, such as processing plants
8Note: Modeled load for 9/15/2020, 5PM. Includes wells spud in 2019 and 2020Source: BTU Analytics’ Power View, BTU Analytics’ Oil & Gas Economics View, ERCOT
Modeled Load (MW)0 150
Processing Plant
Well
ERCOT Modeled Load in the Permian
With 20 years of runway left in the Permian, expect load to grow in core areas and expand outside of core areas as drilling and infrastructure shift
9Note: Modeled load for 9/15/2020, 5PM. Includes wells spud in 2019 and 2020. Remaining inventory Only includes analysis of acreage where at least one horizontal well has been drilled within BTU Analytics' grid since 2013. Source: BTU Analytics’ Power View, BTU Analytics’ Oil & Gas Economics View (updated July 2021), FactSet
Modeled Load (MW)0 150
ERCOT Modeled Load in the Permian3x3 mi grid showing
drilling remaining inventory
Remaining Inventory (Wells)0 75+
Quality solar resource sits near the core of the Permian, so development has beenvery active in the area. So much so that today the Far West accounts for about80% of total ERCOT solar capacity.
10Source: BTU Analytics’ Power View
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Sola
r C
apac
ity
(GW
)
Operational and Proposed Solar Capacity
Total ERCOT ERCOT Far West
Operational and Proposed ERCOT Solar Capacity
Quality solar resource sits near the core of the Permian, so development has beenvery active in the area. So much so that today the Far West accounts for about80% of total ERCOT solar capacity.
11Note: Satellite imagery as of 8/8/2021Source: BTU Analytics’ Power View, ESA
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Sola
r C
apac
ity
(GW
)
Operational and Proposed Solar Capacity
Total ERCOT ERCOT Far West
Operational and Proposed ERCOT Solar Capacity
Quality solar resource sits near the core of the Permian, so development has beenvery active in the area. So much so that today the Far West accounts for about80% of total ERCOT solar capacity.
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0
5
10
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Sola
r C
apac
ity
(GW
)
Operational and Proposed Solar Capacity
Total ERCOT ERCOT Far West
Operational and Proposed ERCOT Solar Capacity
2.5 miles
Note: Satellite imagery as of 8/8/2021Source: BTU Analytics’ Power View, ESA
Quality solar resource sits near the core of the Permian, so development has beenvery active in the area. So much so that today the Far West accounts for about80% of total ERCOT solar capacity.
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0
5
10
15
20
25
Sola
r C
apac
ity
(GW
)
Operational and Proposed Solar Capacity
Total ERCOT ERCOT Far West
Operational and Proposed ERCOT Solar Capacity
TippettProcessing Plant
2.5 miles
Note: Satellite imagery as of 8/8/2021Source: BTU Analytics’ Power View, ESA
Quality solar resource sits near the core of the Permian, so development has beenvery active in the area. So much so that today the Far West accounts for about80% of total ERCOT solar capacity.
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10
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20
25
Sola
r C
apac
ity
(GW
)
Operational and Proposed Solar Capacity
Total ERCOT ERCOT Far West
Operational and Proposed ERCOT Solar Capacity
TippettProcessing Plant
2.5 miles
Maplewood Solar 1 & 2
Tippett Processing Plant (Energy Transfer) signed a PPA buy 28 MW from Maplewood Solar 2
Note: Satellite imagery as of 8/8/2021Source: BTU Analytics’ Power View, ESA
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Win
d C
apac
ity
(GW
)
Operational and Proposed Wind Capacity
All ERCOT ERCOT Far West
Wind development in ERCOT has been focused further to the east and north thanthe Permian. However the Far West still accounts for a quarter of total ERCOT windcapacity.
15Source: BTU Analytics’ Power View
Operational and Proposed ERCOT Wind Capacity
Renewable penetration in western ERCOT has driven down pricing regionally,while also contributing to congestion and higher prices in eastern loadpockets
16Note: Real time prices for 8/10/2020, 1PMSource: BTU Analytics’ Power View, ERCOT
Real Time Pricing ($/MW)-135 5,000
ERCOT Real Time Power Prices
High solar penetration with pockets of
Permian-related load
Renewable penetration in western ERCOT has driven down pricing regionally,while also contributing to congestion and higher prices in eastern loadpockets
17Note: Real time prices for 8/10/2020, 1PMSource: BTU Analytics’ Power View, ERCOT
Real Time Pricing ($/MW)-135 5,000
ERCOT Real Time Power Prices
High solar penetration with pockets of
Permian-related load
High wind penetration contributing to congestion
to the east
As the industry makes strides towards decarbonization and electrification,understanding the interplay between commodities markets will be paramount tomaking investment decisions
18Note: Real time prices for 8/10/2020, 1PMSource: BTU Analytics’ Power View, ERCOT, EPA
Real Time Pricing ($/MW)-135 5,000
ERCOT Real Time Power PricesNatural Gas Compressor Station
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2015 2016 2017 2018 2019Emis
sio
ns
(1,0
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CO
2e)
TETCO Thomaston Compressor Emissions
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2013 2014 2015 2016 2017 2018 2019Emis
sio
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(1,0
00
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CO
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NNG Brownfield Compressor Emissions
Key Takeaways
19
• Unlike most of the rest of ERCOT, electricity demand inWest Texas has been closely tied to Permian oil and gasproduction. Load has tripled over the last 10 years asthe Permian has grown.
• Over the next 5 years, the Permian is expected toincrease oil production by 2 MMb/d and gas productionby 8 Bcf/d. These increases in production will continueto cause concentrated pockets of electricity demand inWest Texas.
• In response to concentrated load, quality renewableresource, and transmission buildout, developers havetargeted West Texas and developed about 11 GW ofwind and solar capacity. That accounts for a third ofERCOT’s renewable buildout.
• The concentration of renewable generation haschanged pricing dynamics in ERCOT, leading to lower,more volatile pricing, which will affect how industryplayers execute on their ESG goals.
Source: BTU Analytics
DISCLAIMER. THIS REPORT IS FURNISHED ON AN “AS IS”BASIS. BTU Analytics, LLC DOES NOT WARRANT THE ACCURACY OR CORRECTNESS OF THE REPORT OR THE INFORMATION CONTAINED THEREIN. BTU Analytics, LLC MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE USE OF ANY INFORMATION CONTAINED IN THIS REPORT IN CONNECTION WITH TRADING OF COMMODITIES, EQUITIES, FUTURES, OPTIONS OR ANY OTHER USE. BTU Analytics, LLC MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANT- ABILITY OR FITNESS FOR A PARTICULAR PURPOSE.RELEASE AND LIMITATION OF LIABILITY: IN NO EVENT SHALL BTU Analytics, LLC BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT) ARISING OUT OF OR RELATED TO THE ACCURACY OR CORRECTNESS OF THIS REPORT OR THE INFORMATION CONTAINED THEREIN,WHETHER BASED ON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
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