Permian Production Driving ERCOT Electric Load Growth

Oil and gas development in the Permian has uniquely impacted the power market in West Texas. While overall load growth has generally been modest at 1-2% per year, and generally related to economic growth and weather, demand in West Texas has bucked this trend and has increased by double digits.

Let’s take a step back and look at overall historical ERCOT load for context. ERCOT consists of eight distinct weather zones which represent geographic regions with similar weather characteristics. Regions with high population density logically make up the greatest load, including the Coast and North Central regions, which include Houston and Dallas-Fort Worth, respectively, as seen in the figure below. These regions also show definite seasonal load trends, with peak load occurring in the heat of the summer when air conditioning is blasting. Total load across ERCOT has increased by an annual growth rate of about 2% over the past five years. However, the Far West region, which lines up well with where Permian oil and gas activity is focused, has made up the majority of the gains in growth, with an annual growth rate of over 10%, and with average load in the region increasing from 2 GW to 3.5 GW from 2015 to 2019 and peak load reaching 4.3 GW in 2019. Also, while there is some seasonality in the region, it is less pronounced, as growth ramps and oil and gas activity is more consistent throughout the year.

Permian oil production has grown tremendously over the past five years, at a growth rate of about 18%, reaching 4.8 MMb/d. Overlaying Permian production against ERCOT Far West Texas load shows the correlation between load and oil production, as seen in the figure below. To facilitate this load growth, several transmission projects have addressed congestion in the region, including the Far West Texas Project, Far West Dynamic Reactive Devices, and Far West Texas Project 2.

Clearly the impacts of COVID-19 on the oil market will temper this growth in the near term, as decreased oil demand is impacting production, as illustrated above, by the rapid decline in production over the past few months. BTU Analytics is anticipating about a 7% average annual decline in Permian oil production in 2020 and 2021 before rebounding. Given this trajectory in oil output and activity in the region, this will likely have ramifications in near term load growth. In the May release of the Capacity, Demand and Reserves Report, ERCOT released an alternative scenario that reflects impacts of COVID-19 on the load forecast, which revised peak demand forecasts for the Far West region down from 5.3 GW to 4.3 GW in 2021. How the post COVID recovery plays out in the oil market will impact ERCOT load in this region. Checkout the BTU View platform for both oil and gas production data and power data.

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Marissa Anderson is the Manager of Data Analytics at BTU Analytics, LLC. She has diverse experience in the energy industry including fundamental analysis, investor relations and engineering. Prior to joining BTU Analytics, Marissa was a Senior Investor Relations Analyst with MarkWest Energy Partners, L.P., and a Senior Energy Analyst with Bentek Energy where she focused on the Natural Gas Liquids market. Marissa holds a B.S. in Chemical Engineering from the Colorado School of Mines, an M.S. in Global Energy Management from the University of Colorado Denver, and is a licensed professional engineer in the state of Colorado.

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