As electricity demand climbs and Permian Basin operators turn to electrons to power operations, an oil and gas producer is putting its natural gas to use for power generation.

Working with onsite power generator Conduit Power, independent producer Riley Exploration Permian is using a behind-the-meter solution with its own gas to help alleviate pain points of inconsistent power and fluctuating prices— challenges that have periodically plagued parts of the basin.

The Permian, replete with excess (and nearly often valueless) gas, has found an outlet as the duo gears up to sell the hydrocarbon to the grid as the electricity needs of the basin are expected to continuing rising.

The move comes as operators seek reliable and affordable power to electrify operations and lower emissions. Aging U.S. power grids are facing reliability issues, intermittent energy sources are causing fluctuation in power generation as demand continues to rise. A domestic manufacturing rebirth, a boom of data centers and artificial intelligence, adoption of electric vehicles and economic growth are ramping up needs.

Discussing how the partnership with Riley Permian began, Beau Egert, chief commercial officer for Conduit Power, said: “It doesn’t take a rocket scientist to look and see how much gas prices are suppressed and to see the arbitrage with power and say, huh, isn’t there something that we can do here?”

Egert spoke at Hart Energy’s DUG Executive Oil Conference & Expo in Midland, Texas.

Riley Permian and Conduit Power, a Grey Rock Investment Partners portfolio company, formed a joint venture (JV) called RPC Power last year focused on capturing natural gas, that would have otherwise been flared, and used it behind-the-meter for onsite power generation.

Earlier this year, the companies took the JV to another level. The two are building new power generation and storage assets to sell energy to the Electric Reliability Council of Texas (ERCOT).

“As you can imagine, there is a very good uplift on gas realizations and I think the bigger question starts to be when this is such a need why don’t operators and producers get to participate in solving?” he said.

Part of the solution

Being a behind-the-meter deal, the JV’s first project was straightforward, said Philip Riley, CFO and executive vice president of strategy for Riley Permian. Having installed its own private use network early on proved beneficial. The project used captured flared natural gas to power the company’s operations in Yoakum County, Texas, which is part of electric power grid managed by the Southwest Power Pool regional transmission organization.

“For good and for bad, gas is an incredible resource. … It really only takes [about] 2 MMcf to make 10 megawatts (MW),” Riley said. “You can power quite a bit with a small amount of gas.”

Egert said the pricing is competitive but behind-the-meter agreements lock in rates over longer periods of time.

Riley added, “it’s probably about the same from what we can tell so far, but, one, we hope we're arresting that increase over time. And then as a 50% owner in the JV we’re also paying ourselves instead of sending it to a true third party.”

The company is leaning on Conduit’s expertise when it comes to sales of dispatchable power to ERCOT, Riley said. The project entails using the company’s natural gas to develop 100 MW of natural gas fueled power generation and battery energy storage systems across multiple facilities in West Texas. They aim to start commercial operations throughout 2025.

In May, Riley Permian said it agreed to sell up to 10 MMcf/d of natural gas to the JV as feedstock supply for the generation facilities. Conduit will operate the facilities and dispatch power into ERCOT through its qualified scheduling entity.

“We’re not building single massive installations of power generation. If you do that at the transmission level, you’re going to get put in a three- to five-year queue. So, we’re doing it multiple installations and locations at a smaller scale and at the distribution rather than transmission level,” said Egert. “And those are key facts to be able to move quickly and capture the opportunity. Obviously, the sooner that we can be providing uplift on gas, the better for so many of our partners like Riley.”

He added that the JV is working with other operators as well to take their gas, turn it into power and sell to the grid.

Surging load growth

Electricity demand is expected to continue growing in ERCOT. The regional transmission organization forecasts electricity demand in the Permian Basin region will rise to about 24 gigawatts (GW) in 2030 and to about 26 GW by 2038. That is equivalent to nearly one-third of the current summer demand for the entire ERCOT system, the Public Utility Commission of Texas said in September when it approved a transmission plan for the region.

The Permian Basin oil and gas load is forecast to rise to about 12 GW in 2030 and to about 15 GW in 2038, according to ERCOT.

The approved transmission plan includes new and upgraded local transmission projects. But large-scale transmission projects are long-dated solutions.

“Smaller projects can get the interconnections more quickly at a distribution level and that’s critically important,” Egert said. “But there’s other headwinds to these large-scale projects. You cannot just turn on these big plants and then turn them off to take advantage of the opportunity.”

The hope is that more oil and gas companies will join and sell their gas into the system.

“We’re having lots of conversations. When you say, ‘Hey, we can provide an uplift to Waha of $1.50 or something like that,’ usually most people are like, ‘Oh, you got my attention,’” Egert said. “It’s a massive arbitrage that we believe is actually a very durable one because of the obstacles of bringing in large scale natural gas generation.”

Riley added that is possible but not a guarantee, given market conditions.

“We think over time that’ll average out and we can achieve that. Essentially it goes back to that molecule. There’s so much inherent energy in that molecule,” he said. “It’s being undervalued in this region, not by anybody’s fault. There’s too much of it. … We can convert that molecule, that under-favored molecule, into something more valuable as an electron.”

Comments