Energy Insider Blog

Will Texas Energy Reliability Problems Hurt E&P Growth

Posted by Dennis Vegas on Jul 25, 2013 1:00:00 PM

Shale gas exploration and production has been a boom to the energy sector.  Suddenly, the U.S. is awash in ample supplies of natural gas and oil.  The explosion in energy resources available from shale deposits in the continental U.S. has led the Energy Information Administration to opine that the U.S. could be completely energy self-sufficient in the next 20 years.  However, this unexpected expansion of oil and gas exploration and production has stressed the electric transmission systems, especially in areas of West Texas, where the available transmission capacity has not been able to keep up with demand.  Electricity usage in West Texas has risen more than 20% since 2009. Therefore, congestion costs increased dramatically. From 2011 to 2012, congestion charges increased ~390% on average.

As a result of the unprecedented growth rate of electric demand and the stress on the transmission system, not only has congestion increased substantially on some transmission elements, but also oil field operators are experiencing challenges in the electrical system which is critical to their operations.    These challenges range from voltage dips, which can damage critical and expensive equipment to outright power outages resulting in lost production and potential damage to one or more well sites.

In order to address these problems, oil field operators are looking at multiple solutions, including:

  1. Working with the local utility to improve reliability;
  2. Building private networks to reinforce the existing transmission infrastructure; or
  3. Taking their operations completely off of the grid and building on-site generation and transmission infrastructure to ensure reliable power flow, also known as islanding

Working with the local utility

The easiest solution to the reliability problems faced by operators is to contact the local utility, inform them of the problem and request additional infrastructure build out.  The more specifics that the operator can provide the easier it may be for the utility to determine the solution.  Of course, there are several drawbacks to this approach.   First, the utility will likely have other construction projects in queue ahead of any improvements that are needed to improve reliability at the oil field.  Second, the time lag between an initial meeting with the utility and solution implementation is likely to be years, during which time the producer will continue to face electricity reliability issues, costing additional time and money in the form of damage to equipment and lost production.

Building a private network to reinforce existing transmission infrastructure

A private network is a distribution network that is behind a substation used to deliver power at high voltage before it is stepped down to voltage levels which are appropriate to power the equipment.  This approach offers the benefit of using private contractors to install infrastructure on private property, meaning that it can be done quicker than through the utility.  However, the construction of a private network may not solve the problem if the energy reliability issues are caused by infrastructure issues on the utility’s transmission network.  In other words, just because the producer builds out appropriate infrastructure on their side of the meter does not resolve the problem if the issue occurs before the switchyard leading to the private network.

Islanding (Self-providing energy needs)

The concept of islanding an area involves building both generation and transmission and distribution to create an “island” which is not served by the traditional power grid but is completely self-sufficient.  This solution to the energy reliability issues being faced has the benefit of completely solving the problem since the producer is no longer reliant on the bulk power system.  While this approach has its own challenges, including potential cost and regulatory issues, with the appropriate thought and guidance from experts in the field, it has the potential to completely solve the problem.


The growth in oil and natural gas exploration and production in the Permian Basin and the Eagle Ford Shale in Texas has created a new energy boom.  Unfortunately, the explosive growth in these regions has put significant stress on the power systems responsible for delivering reliable electricity.  In order to mitigate costs arising from electric power issues, producers have several options available, although each comes with its own challenges.  End users can also financially mitigate the risk of high congestion charges by participating in the Congestion Revenue Rights market, but these financial instruments might not be suited for all customers. In order to find the appropriate solution, producers will need to seek energy advice and fold the solution into an overall energy risk management strategy.


Click for Impact of Electricity T&D Costs  On Your Business

Topics: ERCOT, energy risk management, demand response, energy reliability


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