Justifying major investments demands a customized approach for many producers. The long- and short-term value of decisions, especially when considering non-core infrastructure, must be presented and defended to get buy-in from stakeholders.
Across the industry, producers are making significant investments in electrical infrastructure. Although the primary justifications as reported by producers vary, the responses can be summarized within three major categories:
- Environmental, social and governance (ESG) benefits / greenhouse gas (GHG) reduction
- Resiliency / de-risking
The categories identified above include both tangible and intangible components. In all cases, the combination of factors fully justifies the investment in electrical infrastructure solutions using a case study, specific to each producer, that resonates with those invested in the success of the company.
ESG / GHG
Driven by a new wave of socially driven investors, 2018 brought a new way of thinking to the market, catalyzed in part by Larry Fink, CEO of $7 trillion investment firm BlackRock. Blackrock publicly stated the company would henceforth only invest in companies that truly understand the societal impacts of its business activities. As a result, major institutional investors began analyzing ESG data quantifying environmentally responsible policies on climate change, water management practices, global supply chain management and worker health and safety, among other metrics.
Oil and gas companies immediately went into action and reacted quickly with increased transparency on ESG reports and policy commitment statements. Even with such commitments, investors remain wary and demand action.
The ESG implications of electrification are straightforward. Conversion from inefficient, diesel and/or field gas motors and generators to electrically driven systems will substantially reduce GHG emissions. In addition to the tangible benefits of reduced environmental remediation costs and lower LOE, intangible benefits include:
- Ability to attract investors and investment capital.
- Greenhouse gas reduction supporting air permitting (thus creating head room for core drilling activities).
- Operational efficiency.
- Added flexibility to develop and distribute power in the form of large-scale generation using field gas (reducing flares), renewables or other alternative power sources.
RESILIENCY / DE-RISKING
A surprising result was the overall added resiliency and de-risking of operations realized when converting to electrically driven systems. The conditions required to achieve this result are as follows:
- A reliable power source is available or can be created.
- Producers have solutions for “behind the meter” infrastructure (versus a direct utility connection).
- Electrical infrastructure was built to a highly reliable standard.
- Producers properly maintained electrical infrastructure and had a plan for restoring power in the event of an outage.
Producers consistently noted improved uptime resulting in the ability to consistently meet quarterly production goals. Furthermore, most reported decreased maintenance on field equipment (electrically driven versus fuel driven) and significantly reduced maintenance costs of ESPs.
The intangible benefits:
- Improved ability to deliver consistent quarterly results — many reported 98%+ uptime.
- Added ability to control the outcome when building electrical infrastructure behind the meter.
- Improved remote monitoring and control capability.
The tangible benefits:
- Improved reliability and lifespan of equipment.
- Reduction in vibration induced failures.
- Reduction of production deferment.
For companies who prefer avoiding investment in non-core assets without a clear return on investment (ROI), there’s good news. In many — if not most — cases, the economics are very favorable.
To illustrate the potential for ROI, consider the following analysis based on a case study completed in the Permian Basin for a greenfield development.
The study evaluated the potential for cost savings by accelerating electrical infrastructure and eliminating the use of on-site rental natural gas generators. To determine these savings, a baseline power usage was established based on a forecasted drilling and production schedule. To simplify the evaluation, an average electric rate ($/MW) was established for on-site generators and equivalent grid power. Once the raw power costs savings were calculated, the cost of electrical infrastructure required to electrify well pads and facilities was subtracted to determine the total potential savings.
Savings = OnSite Generation Cost (Rental+Maintenance+Fuel)- Equivalent Grid Power Cost+Electrical Infrastructure
Cumulative Operating Load (MW)
25 MW (Year 1) ramping to 500 MW (Year 3)
On-Site Generation Cost ($MM)
Equivalent Grid Cost ($MM)
Electrical Infrastructure Cost ($MM)
$ 67 (41%)
In this case, the producer developed an electrical infrastructure solution for everything behind the utility’s primary meter entrance (PME). Utilities bill customers based on both consumption of power and rate tariff schedules. The calculation of the bills and discounted rate availability varies by region, but in many cases, large power users who develop their own infrastructure to connect to the grid capture additional savings related to their electric rates. In the case study, rate savings are included as part of the calculation.
Results: Using conservative assumptions, the study showed the potential for 40%+ savings over a period of three (3) years when connecting to electrical power.
The tangible benefits:
- Decreased maintenance costs based on a reduced number of diesel/natural gas consuming engines and the simplicity of electric motor maintenance.
- Grid power cost discounts (based on usage and infrastructure).
- Reduced cost of power (on-site generation vs. grid power).
In this specific situation, the tangible economic benefits alone pop off the page. The producer also capitalized on ESG messaging and overall resilience and de-risking of its system.
No producer or basin is created equally. But given the right conditions, the potential benefits of electrification make it worth exploring. The sections below identify key considerations when evaluating your own potential for savings.