Lines built for Texas wind power help supply Permian oil patch

Fri Oct 25, 2013 1:50pm EDT

* Electricity needs for oil, gas production strain grid

* Wind lines near completion as West Texas oil activity soars

* New wind lines designed for more wind-farm development

By Eileen O'Grady

HOUSTON, Oct 25 (Reuters) - High-voltage transmission lines being built to carry electricity from wind farms in West Texas to the state's major cities are instead helping power the boom in oil exploration and production in the Permian Basin, according to a company serving the region.

Owing to the use of hydraulic fracturing and horizontal drilling to unlock oil and natural gas resources, electric demand in the prolific Permian Basin - which stretches from West Texas into New Mexico - has been growing 5 to 6 percent a year, said officials with Oncor, the Dallas-based transmission company that serves much of the Texas Permian.

That's more than twice the growth rate for electricity seen across Oncor's north Texas system that includes Dallas and Fort Worth, said Jim Greer, Oncor's chief operating officer.

In addition to having a long history as one of the country's largest oil and gas producing regions, West Texas has seen a surge in wind generation that propelled the state to No. 1 in the nation with 10,570 megawatts of wind capacity. Texas is also the top power producer and consumer in the United States.

The growth of wind farms initially created congestion on the existing power grid as electricity was unable to move to power-hungry cities like Dallas, Austin and San Antonio.

That led state regulators in 2008 to approve plans to construct thousands of miles of new high-voltage power lines to tap wind resources and to support another 8,000 MW of wind-farm development.

Transmission built under that program, called Competitive Renewable Energy Zones, or CREZ, will be in service by the end of the year.

Congestion on the older West Texas power grid became acute in 2012 as oil production surged past 1.2 million barrels per day, creating a surge in wholesale power prices in the region.

Now oil companies are embracing the new power lines to solve power issues in the bustling oil patch.

"We've been able to utilize the transmission lines being built for wind," Oncor's Greer said. "They are now able to support this high-growth area."

LOOKING AT OTHER OIL FIELDS

Periods of economic boom and bust are not new to West Texas, where oil was discovered in Mitchell County, 350 miles (563 km) west of Dallas, in the early 1920s.

Since then, the Permian Basin has produced 29 billion barrels of oil, according to Texas regulators, enough to supply the nation's current appetite for oil for four years.

A new boom is now under way as oil companies like Apache Corp, EOG Resources and Pioneer Natural Resources use fracking technology to extract oil from geologic zones previously thought too expensive to produce.

"The formations have been so well-researched over the years," Greer said. Companies "know where the oil is and now that they have the technology, it's how fast can you move."

The need for more electricity to serve oil and gas infrastructure and fast-growing towns spurred Oncor to find ways to better pinpoint oil company needs and to propose more than $200 million in grid upgrades.

"We had a fairly good handle on load growth, but you couldn't have picked a weaker spot on our system," said Greer. "We were used to serving rural, traditional oil fields, not the compression and related equipment needed now" to meet oil company needs.

Electric infrastructure has also been a problem for energy companies operating in the Eagle Ford shale of South Texas where American Electric Power has been busy expanding energy company connections to the grid.

In West Texas, some upgrades will take a year to install so the nearly finished wind lines offered a quicker solution.

By year-end, Oncor and 11 other power companies will have energized more than 3,500 miles of new 345-kilovolt transmission lines as part of the CREZ program at a cost of $6.8 billion.

Oncor built the largest share of CREZ projects - more than 1,000 miles at a cost of $1.9 billion, according to grid reports.

Oncor is a unit of Energy Future Holdings which is owned by a group of private equity firms, including Kohlberg Kravis Roberts & Co.

Other companies building CREZ lines include American Electric's joint venture Electric Transmission Texas, privately held Sharyland Utilities, LS Power Group and affiliates of NextEra Energy and Spanish-based Isolux Corsan.

AEP and Oncor officials say lessons learned in the Eagle Ford and Permian Basin will help solve potential power supply issues in the Spraberry, Wolfcamp and Cline formations of West Texas, areas some analysts predict may be the largest oil find in the United States.