As the Permian continues to grow and gas takeaway from the basin becomes more and more constrained, one possible source to soak up some of the new production could come from local gas fired power plants. While the overall volumes may not provide the level of relief required (read: pipelines), at this point something is better than nothing. As an added bonus, operators in the play are consumers of electricity generation and could use that power production locally. Today we look at how much additional gas supply might be able to theoretically be utilized for power production in the Permian.
The following data uses two data sources from the EIA. The EIA 860 data contains power plant capacities through 2016. The EIA 923 data gives monthly generation by plant with a 3 month lag. However, not all of the 2017 data is complete until the annual release is revised and finalized, which is not available until November. Because of this, select plants have usable generation data through January of 2018 but the overall Permian dataset is reliable only through December of 2016. The chart below shows the historical generation and capacity data for 2015 and 2016 for all of the counties in BTU’s Permian sublocations (Texas only). Utilizations for these years averaged 25%.
BTU has covered gas takeaway out of the Permian basin in the past, and highlighted the effect that constraints are having on Waha basis. In-basin prices have continued to show weakness to Henry Hub the past 6 months, which may incentivize power plants to begin operating at higher levels to take advantage of cheap prices and local demand.
While the 2017 data is incomplete, two Permian gas-fired power plants have available generation data which can be used to examine more recent trends in the basin. Monthly utilizations for the Mustang Station plant are shown below. While the winter months have typically reported very low utilizations, November and December data for 2017 came in at 50% and 63% respectively. January of 2018 was also at nearly 50% utilization, much higher than the sub 15% utilizations generally seen in that time frame.
The Odessa Ector plant data tells a similar story. For a given month, the plant has been running at or above the highest utilizations since the beginning of 2015. From October of 2017 to January of 2018, the Mustang and Odessa Ector plants have averaged 34% higher utilizations year over year. Any annual comparisons to power data also need to consider that weather will have a significant effect on generation. Pulling historical weather data for the Odessa area shows October of 2017 was 7 degrees F cooler on average than the previous year. However, November and December values were within 1 degree F of 2016 temperatures. A cold January 2018 was nearly 4 degrees cooler than January 2017. Even though we would expect to see higher utilizations for those colder than average months, the magnitude of increases along with the persisting higher utilization during average temperature months suggests that plants may be ramping up based on structural demand changes.
Seeing as the natural gas takeaway constraints from the Permian are not expected to see any pipeline relief until late 2019 at the earliest, BTU expects this increased Permian power generation to continue in the near term driven by increasing load from gas processing plants, compressors, electric pumps, and other related oil field activity. If higher utilizations are seen for the other plants running in the Permian, what would that mean for gas demand? The Mustang and Odessa plants averaged 34 percentage points higher from October to January year over year. For a more conservative estimate, the chart below assumes only a 15 percentage point increase in utilizations for the rest of the Permian basin plants beginning in the second half of 2017. This utilization difference would result in 150-200 MMcf/d of additional gas supply being used locally for power generation.
Additional burn in-basin could supply operators with some needed electricity while reducing the gas volumes needing transport out of the region. Seeing as the congestion on the main pipelines out is worsening as Permian production continues to grow, this may provide some temporary relief. For more information on BTU’s Permian gas views, request a sample of the Henry Hub Outlook Report.