Unconventional U.S. E&P accounts for $8B of water services
The significant variability of available water resources on a regional level, combined with drought stress in some areas and increasing water-use demands from across all segments of the economy, is driving water management issues to the forefront of U.S. exploration and production (E&P) operations’ considerations, and accounts for $8B in spending for water services in U.S. unconventional oil and gas plays, according to a new research report from IHS Inc., the leading global source of information and analytics.
That market, according to the report, IHS Energy Insight – The Future of Water in Unconventionals: Water Market Opportunities,accounts for water management products, services and equipment sales. The IHS report, produced in conjunction with CAP Resources, a Houston-based consultancy, assesses water demands and the varying characteristics of water management across 13 high-activity, oil and gas plays in the continental U.S., and existing oilfield water management from associated geographical regions (excluding California). It covers the entire water management value chain – acquisition, storage, transfer, hauling, treatment and waste-disposal services.
“While we expect modest growth in the overall national water management market of 13 percent, that national figure obscures the true potential for water management services within the unconventional oil and gas plays,” said Marcus Oliver Gay, principal author of the IHS study and director, Water Information and Insight at IHS. “Not accounting for inflation, we expect the continental U.S. oilfield water management market to grow to $38B by 2022, with demand for water management services in high-activity shale gas and tight oil plays to grow by nearly 40 percent by 2022, to roughly $11.2B.”
“No one-size-fits-all solution exists for water management in oil and gas, since there is such significant variability of water availability across regions and the water services sector is still quite localized and fragmented,” said Aaron Horn, consultant with CAP Resources and a contributing author of the report. “As a result, the local water sourcing, disposal options, and regulations will drive customized solutions in each play or basin.”
It is increasingly important, noted the report, to evaluate water availability and usage in the context of the overall water balances, which vary by region. In Texas, for example, the report noted that development of unconventional oil and gas activities often account for less than 1 percent of the state’s available water resources, however, in some locations such as Johnson County, Texas, E&P water use may account for as much as 29 percent of the available water resource at the county level*.
While some areas have plenty of water for all significant users (including agriculture, power generation, industry and municipal use), others are in drought-prone regions where water stress is becoming an important consideration for all stakeholders.
In contrast to most conventional oil and gas E&P, water and wastewater management is a significant cost in unconventional oil and gas developments. IHS estimates that front-end water acquisition, storage, transfer and waste-disposal services associated with the initial hydraulic fracturing of a new well can represent about 10 percent of a well’s total capital expenditure budget. Once a well is producing, the storage, treatment, transport and disposal of produced fluid during the life of the well can represent one-third to one-half of the total annual operating expenses of a well.
These cost levels, noted the IHS report, indicate the strong economic incentives for E&P operators to pursue efficient, fit-for-purpose water management solutions that will keep costs down. Continued constraints on water availability and wastewater disposal capacity are driving new operational best practices such as the use of brackish water or recycled wastewater, said IHS. According to study researchers, some unconventional plays recycle greater than 80 percent of oilfield wastewater. Nationally, approximately 16 percent of fracture fluids volume is made with recycled oilfield wastewater today. IHS expects this figure to double by 2022.
“More companies will adopt a comprehensive, strategic water management approach that increases operating efficiencies through the use of brackish water, as well as recycling and reuse of treated flow-back and produced fluids in the coming decade,” Gay said. “This will yield another significant benefit to communities — a reduction in the use of trucks (and the resulting truck traffic) to haul water to, and wastewater from, well sites.”
Requirements for local water storage, transfer and treatment services are expected to increase during the next decade. Gay added, “These are the activities where IHS and CAP Resources expect the most innovation and technological development to occur, driven by the impetus for cost reduction, efficiency, environmental and overall stewardship of water resources.”
*Statistic source: “Water Use for Shale-Gas Production in Texas, U.S.,” Jean-Philippe Nicot and Bridget R. Scanlon, Bureau of Economic Geology, Jackson School of Geosciences, University of Texas at Austin, published in Environmental Science and Technology, March 2012.
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About CAP Resources
CAP Resources is strategy consulting firm specializing in helping clients position their growth initiatives for optimal success. The firm specializes in qualifying and launching new technologies and product lines, vetting market opportunities, deep market research, technology commercialization, financial modeling and M&A due diligence and support. Specialties include environmental services and systems for upstream, midstream, and downstream oil and gas, including water treatment, logistics, solids handling, integrated waste handling, NORM and gas processing.Founded in 1994, CAP Resources has completed over 600 projects in energy, advanced materials, and technology sectors. For more information, visit www.cap-res.com