The Texas water rush
Despite the energy price turmoil, frac’ing is here to stay – and so are the opportunities for water treatment, says Amanda Brock.
Much has been written about the ‘water-energy nexus’ since this ubiquitous phrase was first coined. And even more has been written recently regarding water use in hydraulic fracturing in oil and gas production. But there has never been such a dramatic example of the interdependence of water and energy than the current frac’ing boom in a dry expanse of West Texas and New Mexico known as the Permian Basin. This area is one of the most prolific oil- and gas- producing basins in the world, changing the outlook for global energy production. As the energy sector recovers and production is once again on the rise, the focus has shifted to water as a potentially limiting factor which could act as a bottleneck to production. For companies associated with the water industry, that means opportunity.
Water is a primary element in frac’ing, which is a method for producing oil and gas where highly pressurized water and sand are injected into a well, creating tiny fractures that allow more oil and gas to be released from the shale rock. The sand props open the cracks and water delivers the sand in the formation. As frac’ing in the Permian has exploded, water has become the headline event. To put this in perspective, the number of rigs drilling in the Permian has increased from 146 to 361 since June 2016. Permian oil production is projected to be a record 2.49 million barrels in June 2017. To achieve that production level, it takes on average an estimated 300,000 barrels or more of water to frac’ a typical single well. Since 2013, water use per well is in the Permian is up 434%, and we now see the rise of mega-fracs using over 42 million barrels of water. All of this water demand is occurring in a region that receives annual rainfall of about 14 inches a year.
Issues related to water intensity have dramatically increased three interconnected factors: demand for source water to frac’; produced water volumes; and the need to dispose of produced water. On the demand side, Qingming Yang, COO of Approach Resources, estimates that at least 20 billion barrels of water will be needed to develop the remaining Permian resources. This is an enormous quantity of water that will have to come primarily from groundwater resources that are increasingly stressed. On the produced water side, Laura Capper, president of CAP Resources, estimates that roughly 4 billion barrels of water are produced from oil & gas production and extraction in the Permian every year. Again, that number is increasing in the Permian, with an average of 6.5 barrels of water produced for each barrel of oil. This vast volume of water has to go somewhere, and today, the majority of produced water volumes are disposed of into Glass II salt water disposal wells.
It’s hard to grasp the sheer enormity of these volumes and the challenges they post, particularly when you realize the Permian is only one of many oil- and gas-producing basins in the US. Research from Barclays estimates that 30% of a well’s capex is water-related, and 40-50% of opex comes from produced water management and disposal. Water costs for frac’ing in the Permian, excluding transportation costs, generally range from $1.00 to $3.00 per barrel. Operators are now facing enormous challenges related to balancing the availability of fresh water needed for frac’ing with the cost of effectively disposing of the resulting produced water. As a consequence, the opportunity to treat and recycle produced water is now gaining momentum, and Barclays estimates that reusing produced water in frac’ing could lower water costs by 45%. Not only can an operator reduce costs by recycling, but also cut water acquisition volumes, and improve sustainability.
Frac’ing is not going away, and operators have yet to solve the looming water dilemma. Therein lies the opportunity for water treatment providers. Recycling produced water for frac’ing can eliminate bottlenecks and provide operators with the secure supply of water they need to produce oil and gas, while lowering costs and minimizing disposal volumes. It’s a win for everyone, including the environment. In the Permian and beyond, the prize is too big not to get recycling right!

All Trumped up

The US water industry must take the new president at face value – and the rhetoric is encouraging, says Amanda Brock.

In case anyone missed it, the United States has a new president, Donald J. Trump, who was sworn into office on 20 January. In these contentious times, it’s best to focus on the facts as we try to decipher what a Trump presidency could mean for the US water sector. There should be no surprises when it comes to Trump’s intentions; in his first few weeks of office, he is doing exactly what he promised to do while campaigning. He vehemently dislikes any regulation he thinks impedes business, enthusiastically promotes US energy independence and private sector participation, is extremely vocal about rescinding president Obama’s climate change initiatives, and is emphatic that water infrastructure and access to clean water must be a priority.
During his campaign, Trump pledged to develop long-term infrastructure plans to upgrade ageing water systems, and triple funding for state revolving loan fund programmes. This would mean providing SRF programmes with $2.58 billion for drinking water and $4.17 billion for clean water. He assured voters that what happened in Flint, Michigan, would not happen on his watch, and told California voters he knew how to fix their water problems. In ScienceDebate 2016, he argued that clean water may be the “most important issue we face as a nation for the next generation” and that “we must make investment in our fresh water infrastructure”, “explore all options to make desalination more affordable”, and work to “to build the distribution infrastructure” needed.
The obvious question is: how will the Trump administration fund these initiatives? In a document outlining what his administration will do in the his first 100 days in office, Trump states that he will “cancel billions in payments to the UN climate change programs”. He has also talked about convincing the private sector to invest over $1 trillion in public infrastructure projects, incentivized by tax credits. In a measured statement, the executive director of government affairs for the American Water Works association (AWWA) said: “Certainly what we’re hearing out of the Trump Administration is encouraging to the water utility sector”. Others have not been as diplomatic, raising old fears that private sector participation is guaranteed to hamper access to safe sources of drinking water, whilst rewarding corporate greed. The fundamental issue is that we need change in the industry. AWWA has identified the need to spend $1 trillion just rebuilding US drinking water systems over the next 25 years in order to maintain existing levels of service, which at times are questionable. The numbers keep growing, the problems get worse, and we keep talking about it. At the very end of the Obama administration, we were heartened by a late focus on water with the Moonshot for Water initiative. However, it unfortunately came so late that the impact was limited.
So what has president Trump done so far? On his first day in office, all mention of “climate change” disappeared from the official White House website, replaced by the America First Energy Plan, which proposes to roll back the Obama Climate Action Plan and the Waters of the US rule which expanded the rivers, lakes and wetlands protected by the EPA. Trump’s Energy Plan promises “responsible stewardship of the environment” and to return the EPA to its “essential mission of protecting our air and water”. The president has also nominated Scott Pruitt, an avowed foe of Obama’s environmental policies, to head up the EPA. President Trump is determined to implement the platforms he campaigned on. So we can expect more federal funding and private sector participation in the water sector, and the encouragement of public-private partnerships, while needed infrastructure projects will go ahead. We will see change, but it is unlikely we will see the repeal of key environmental statutes affecting water and waste. At the end of the day, it is about balance. Trump is bold and opinionated. But he cares about what the media writs, and he does not want a backlash from his voter base. So while many may not like Trump’s politics, style or approach, perhaps as an industry we should be watchful, cautious and encouraging.

Desal getting bigger in Texas

Desalination is set for a sea change in the Lone Star State, argues Amanda Brock.

There are great opportunities in Texas for companies that are able to utilise their desal technologies in multiple applications. But this requires the ability to understand and navigate the complexities of the Texas market-place, and take into consideration the huge footprint of the state itself. Even with the slowdown in the O&G sector, in 2015 Texas remained the top destination for one-way moving truck rentals. Houston, San Antonio and Austin ranked as three of the top five destinations nationally, and as many as 345 people still move to Texas every day.
Understanding the connection between desal and Texas requires an understanding of the upstream and downstream O&G sector. Texas has 29 operating refineries processing approximately 5.8 million barrels of crude oil per day. Houston, soon to be the third-largest city in the US, accounts for over 40% of the nation’s base petrochemical capacity on its own. Plants in Freeport, Beaumont, Corpus Christi and other Texas cities and towns make the state the largest petrochemical market in the US.

Watching the slowdown in the upstream O&G market – including the unconventionals market – is concerning, but there continues to be a significant need for desal technologies relating to the treatment of water used and reused for frac’ing and produced water.
The Texas Water Development Board reports more than 100 desalination plants installed in Texas. Most are small or intermittent-type facilities, but there are three large facilities in-state: the Kay Bailey Hutchison plant in El Paso, which can produce up to 104,000m3/d of fresh water, the Southmost Regional Water Authority Desalination Plant (28,400m3/d) for south Texas, and a new brackish water desal plant currently under construction in San Antonio. Phase 1 of the San Antonio Water System (SAWS) desalination plant is set to be completed this year, and will produce 10 million gallons (37,850m3) of fresh water daily.

All desalination facilities in Texas currently use brackish groundwater. There were no seawater plants in operation in Texas as of October 2016, although several are planned, and at least one is under construction at a petrochemical facility near Corpus Christi. But that is about to change.
Cities and towns throughout Texas such as Galveston, Corpus Christi, Freeport, Baytown, Conroe, Katy and Odessa are all looking at desal options as part of their overall water portfolios. Katy, a suburb of Houston, recently contracted a 2MGD (7,570m3/d) brackish water desal plant to help with groundwater subsidence by taking water from a deep brackish water aquifer. Other cities and towns that have an industrial base, such as Corpus Christi and Freeport, are looking at ways to reduce the overall cost to install desal facilities by having industrial partners participate in the projects. Desal technologies are also being used for direct and indirect potable water reuse projects.

The challenge for companies is in appreciating the complex market. For the municipal sector, understanding 1) the regulatory and permitting requirements; 2) who to deal with at all levels – local, state and federal – and 3) the contracting mechanisms used to execute projects add to the complexity of developing desal projects in Texas. The current go-to method for contracting municipal projects in Texas is DBB, although other methods such as CM@R, DB and PPPs are being considered.

The interest level continues to be high among our elected officials, including Texas Governor Greg Abbott. He and other politicians recently travelled to Israel to visit desal facilities and witness the positive effects of desal in Israel. There are many reasons why the Texas market is attractive to desal-related companies, and many companies have been successful here. The common denominators in these successes were patience, a diverse technical portfolio, the capability to operate in the industrial and municipal markets, and the ability to build relationships.

As reported in the Water Desalination Report – 11 July 2016

Houston-based Water Standard has successfully executed a contract for an Ultrapure Water Package for a major international oil company. The package will be installed on a 175,000 barrel-per-day floating production system located in deepwater, Gulf of Mexico. The package – which consists of an RO system, Water Standard’s proprietary MDA (membrane deaeration) system and a continuous electrodeionization (CEDI) unit – will provide high purity water for the platform’s boiler feedwater system.
The compact, skid mounted package was manufactured and tested in Water Standard’s Houston fabrication facility, and according to Mark Legg, the company’s Senior Commercial Vice President, is the first of its kind on an offshore platform.
“Not only was the entire system designed to meet Class 1, Division, 2 specifications for operation in hazardous environment, it must produce water with a specific conductivity of less than 0.10 µS/cm and the MDA’s membrane contactors must continuously remove dissolved oxygen to less than 10 ppb without chemical oxygen scavengers,” said Legg.

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Click the image below to see the full article, “Rethinking water in the oilfield.”

Click the image below to see the full article, “Water crisis in an election year.”

Water Standard is pleased to present Upstream Technology Magazine’s article featuring Water Standard and the development of compact Membrane Deaeration Technology (MDA) to remove dissolved oxygen from injection water. This article, which was published in the 10/2015 edition of Upstream Technology is protected by copyright. Click the image below to read the full story.

Booms, busts, and the next big thing

Water needs to keep looking beyond the horizon, says Amanda Brock.

Water industry players are eternal optimists with short memories. Looking at the global macroeconomics of water scarcity and infrastructure needs, who can blame us? Any logical person would conclude that there is big money to be made and invested. Consider California – one would assume that opportunities abound for smart water companies and investors. However, while there is growth in certain niche segments, there remain few viable options for the private sector to develop and fund long-term sustainable solutions. Water is not always about logic.

The American Water Works Association just published its 2015 Annual State of the Water Industry Report, which again concludes that infrastructure challenges top the list of concerns, and questions how to finance critical infrastructure. AWWA estimates $1 trillion is needed in investment to replace and expand US water and wastewater infrastructure. The reality, however, is that the municipal market has not developed as hoped, and continues to disappoint private sector investors. While the lack of opportunities has driven certain players to exit the market, the sheer magnitude of investment required is so tantalising that they are quickly replaced by fresh players keen to crack the code.

With the hurdles facing the growth of the municipal sector, many hoped that the “next big thing” in water would be water treatment in the unconventional oil and gas sector. But as rapidly as the market grew, it then contracted. Many water and oil field service companies which made significant investments in the sector are scrambling to redefine their focus. While the energy industry is used to dramatic boom and bust cycles, water players are not, and this sort of volatility has hit them particularly hard.

To compound the problem, the US Environmental Protection Agency has now published its long-awaited draft report on the impact of hydraulic fracturing, concluding that frac’ing has not led to widespread systemic impacts on drinking water sources. This result will further delay investment in water treatment in the unconventional energy sector. Only those companies with strong balance sheets, well-defined channels to market and a diverse product and client base, or those with proven, commercialised technologies that lower costs, will survive in the longer term.

So what now? We do what we always do: try to ignore the disappointments and look for the “next big thing” to get excited about.

Players are now rushing to position themselves in the growing industrial and power sectors, fuelled by the availability of cheap energy. Power utilities now see themselves as the next big water players, capable of taking advantage of their access to the retail market, their own water needs, their ability to co-locate power, water treatment facilities and desalination plants and, most promisingly, delivering behind-the-fence, multi-commodity services to industrial clients. Allete, a Minnesota- based power utility, recently bought U.S. Water Services, an integrated industrial water management company, in order to gain access to the industrial sector, and more M&A activity is predicted.

Desalination is all the buzz in Texas, and companies are arriving in droves touting their references and establishing offices. Curiously, European players are looking to expand into the US and Mexico, while US players are looking to expand globally. Meanwhile, all is not lost in the oil and gas water treatment sector. There is continued growth in water treatment for enhanced oil recovery, smart water injection and produced water treatment, recycling, and waste minimisation, while a mid-stream sector is beginning to emerge.

Overall, we should be cautious and consider the implications of the markets that have not developed as anticipated, and consider lessons learned. Making money and succeeding in the water sector is hard. But what makes us unique in water is the very fact that we have short memories and are always looking forward. As eternal optimists, we remain convinced that we will always be the ones to find the “next big thing.”