The U.S. Energy Information Administration significantly increased its forecast in June for commercial electricity sales through 2025, and it didn’t rule out raising it again soon.
The news comes after commercial electricity consumption has already surged in many states critical to the oil and gas sector since 2019 — Texas, Oklahoma, North Dakota and much of the West.
Source: EIA
The ramification for oil and gas companies is that they now find themselves in intense competition with each other and other sectors for the electricity they need to power new projects.
What does surging electric demand mean for the oil and gas industry?
Many oil and gas operators have sought to electrify a greater portion of their operations in recent years. According to a survey of oil and gas industry leaders conducted by Endeavor Business Intelligence on behalf of NextEra Energy, 88% say their company is either currently electrifying or evaluating electrification of operations.
The benefit of electrification for oil and gas operators has been lower costs and emissions, but now the competition for clean energy to power operations and drive progress toward emissions-reduction goals has become fierce. At least half of oil and gas leaders surveyed said their companies are struggling to get the energy they need in the Mountain West, Gulf Coast and New England regions of the U.S. The Upper Midwest was not far behind, with 44% struggling to get energy in states like North Dakota, South Dakota and Nebraska.
If the grid isn’t able to keep up with surging demand, oil and gas leaders will need to make tough choices:
- Slow down development plans until the grid can catch up.
- Compete against other oil and gas companies and industries, including tech and manufacturing, for power from a finite number of new generation projects.
- Develop their own electricity solutions, such as on-site fossil or renewable distributed energy resources (DERs), microgrids and battery energy storage systems.
Seven ways oil and gas companies are pursuing clean energy supplies
Nine of 10 oil and gas leaders said their company has set a corporate goal to reduce carbon emissions. Yet only 14% of respondents said their company had reduced emissions by more than 25% from baseline, and only 25% said their company used zero-carbon energy sources for more than half of their energy needs.
Oil and gas companies have much work yet to do, but industry leaders have identified several creative ways they are pursuing additional sources of clean energy.
- Grid power with renewable energy credits: Thirty percent of oil and gas leaders surveyed said their company uses a “clean energy” option in which a utility or retail electric provider supplies grid electricity with offsetting renewable energy credits. Another 54% said they are actively pursuing such clean energy options. This clean energy solution depends on electric grid supply, so it is not an adequate solution in the growing number of areas with grid power constraints.
- Off-site renewable energy: Thirty percent said they use energy from off-site renewable projects, such as solar and wind projects, and 46% said they are pursuing it. The limiting factor for off-site renewables is that, while a renewable developer may be willing to build a solar or wind project to provide electricity to an oil and gas field, the grid can only connect and deliver so much power without costly and lengthy transmission and distribution system upgrades. Virtual power purchase agreements (PPAs) or renewable product purchase agreements (RPPAs) may be able to help oil and gas companies bypass that hurdle, as they often aggregate energy from smaller renewable DERs that do not require major grid upgrades.
- On-site renewable energy: Twenty-nine percent of oil and gas leaders said their company has developed on-site renewable DERs, while another 46% are pursuing them.
- On-site battery energy storage: Slightly trailing the popularity of on-site renewable DERs, 27% said their company already uses on-site battery energy storage, with another 45% pursuing it.
- Microgrids: Microgrids can be any mix of on-site renewable, fossil and battery storage DERs managed by smart control systems, and the flexibility and cost savings they can create have led to a surge in interest across industries. Nearly half of respondents said their company is evaluating microgrids, and another 35% said their company is using a microgrid.
- Software and analytics to manage equipment and energy use: Two-thirds of respondents said their company uses equipment management software to reduce emissions. In addition, 42% said their company uses software and analytics to optimize energy use. Comprehensive energy management software, such as that offered by NextEra Energy Resources, leverages energy generation and consumption data across a wide range of assets to improve operational efficiency, reduce costs and unlock savings.
- Energy efficiency: Forty-three percent of oil and gas leaders said their company uses energy and energy efficiency consulting, with another 44% evaluating the use of a consulting service, such as NextEra Energy’s independent energy consulting firm Usource. In addition, 36% said their company implements traditional energy efficiency measures and 42% are evaluating efficiency projects.
Due to surging electricity demand and the grid’s emerging struggles to meet it, oil and gas companies are pursuing innovative means to procure clean energy supplies and use energy more efficiently.
Planning and implementing these means without experience across both the oil and gas industry and the renewable industry is a major challenge. In response, more than 80% of oil and gas leaders said their company has or is evaluating a large-scale partnership with a clean energy provider across multiple locations for energy and energy services.
Finding the right path forward to maximize growth and meet emissions-reduction goals is a complex task, but collaborating with clean energy companies with the scale, experience and technology is a proven way to find efficient and reliable solutions.
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