Citigroup warns West Texas could see rotating outages as soon as next summer, as oil producers and data centers push electricity demand to record levels.
Oil and gas producers' growing electricity needs are colliding with data-center development in West Texas, pushing the region's power grid toward a breaking point. Diamondback Energy Inc. CEO Kaes Van't Hof said his company's power consumption will likely double over the next decade even if production stays flat, while Citigroup Inc. analysts warned the area could face rotating outages as soon as next summer.
"Electricity consumption for the Permian has just gone through the roof," Van't Hof said in an interview published Wednesday by the Federal Reserve Bank of Dallas. "It's only gone up every year."
The jump in demand reflects a broader U.S. trend, but the Permian Basin is an extreme case. Producers have been swapping diesel-powered rigs and frack pumps for electrified equipment for years, and data-center development is now accelerating the shift.
Texas grid and utility officials told the state House State Affairs committee this week that the Permian needs more transmission lines. Citigroup analysts Ryan Levine and Amber Zhao, who monitored the hearing, wrote Thursday that "Far West Texas could face rotating outages as early as next summer" regardless of data-center demand. The existing oil and gas buildout alone, they said, requires the new lines.
Pipeline owners and oilfield service companies are racing to expand their offerings to serve data centers. Diamondback has looked into building microgrids to power its own frack gear, Van't Hof told the Dallas Fed. The average wait to connect to the grid in the Permian has hit 950 days, he said, reflecting how fast drilling expanded over the past decade.
Producers and data centers have one advantage: access to abundant natural gas, produced as a byproduct of oil. Even if oil production levels off, rising gas-to-oil ratios from drilling activity mean the basin will keep growing as a gas-producing region, without operators specifically targeting gas.
Peak power demand on the Electric Reliability Council of Texas grid may challenge all-time records this week as a heat wave pushes up air-conditioning use. With wind generation expected to weaken at peak times, Ercot will lean on gas generators and batteries.
For Diamondback, the Alpha Score is 58 out of 100, a Moderate rating, while Citigroup scores 59, also Moderate.
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