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Three Hidden Water Costs That May Already Be Boosting Energy Prices

by | published May 28th, 2013

This may sound funny, but water availability is becoming an issue in energy generation. And it may start to impact prices.

The issue here is not the environmentalimpact of water usage. That is quite a different debate. The traditional arguments against hydro-fracking and water needs for conventional drilling have been made for years, but roundly dismissed by the industry.

What I’m talking about today is the water supply/demand issue.

Because water is plentiful in those areas of the U.S. where shale gas and tight oil drilling is most concentrated, the price of the water itself is very low.

But there are three other costs involved with the usage of water, and those are beginning to cause some serious concerns.

Here’s what I mean…

Last week, noted energy blogger Eli Hinckley suggested that a combination of factors may yet result in rising energy prices. In a piece appearing in The Christian Science Monitor, Hinckley noted prolonged droughts and overuse may prompt a reconsideration of the three real issues that would impact energy producers:

  1. Access
  2. Treatment
  3. Transport

With fracking, about one gallon of water is required for each million BTUs (equal to 1,000 cubic feet of gas). My latest estimates put our expected production at 87 billion cubic feet per dayby 2020. In addition, coal-fueled electricity generation uses one gallon per kilowatt hour, while nuclear generation requires much more.

Now all of this still this does not translate into any appreciable drain on the amount of available water. At least not by itself. But the primary water usages are elsewhere.

Agricultural production accounts for about 70% of annual water usage worldwide. Drilling and mining needs are included in global industrial usage of about 23%. On the other hand, that category increases to as much as 40% in the U.S. All remaining needs must be covered by what remains.

Right now, there’s no need to panic. All estimates indicate there is sufficient freshwater to cover all of these requirements, at least for now.

Unfortunately, there are indications that rising demand from all areas may begin to outstrip water supply by 2030. Some studies put the deficit as high as 40%.

But I have doubts about whether these predictions are accurate.

What’s more, there are conservation programs, industrial and technical advances, as well as desalination developments that are quite likely to change the equation over the next several decades.

Lack of supply (i.e., rising costs) is hardly the first water problem likely to be faced by energy producers. It will be from the three categories I mentioned earlier: access, treatment, and transport.

What is beginning to concern an industry having genuine prospects to revolutionize domestic gas and oil extraction is not how much the water costs by itself, but three other expenses…

1) Local authorities are making water access more expensive.

Some of this may be genuine reactions to imbalances for water use in other areas, maintaining adequate water pressure to provide everything from residential and commercial use to fire hydrants and public safety. But the issue of water in many communities is becoming a political issue. And whenever that happens, operators brace for heightened charges and increasingly restrictive licensing.

2) Expenses are increasing to treat flowback and processed water once it has been used in the fracking process.

As the volume of shale and tight drilling increases, so also does the problem of what to do with contaminated water that comes back up pipe with the gas and oil. The flowback contains tailings (rock shavings and other drilling residue), the chemicals put down the hole in the fracking process, and the hydrocarbons themselves.

New advances in fracking that are less reliant on harmful chemicals are being introduced. As that happens, and the use of non-water fracking (carbon dioxide and propane, for example) becomes commercial, the resulting water flow may improve. Also, water is currently reused for later drilling in most locations.

But at some point what is coming up hole exceeds standards and cannot be reintroduced into the environment. The water must then be treated and permanently injected into deep “disposal basins.” As basin capacity becomes exhausted, hauling such water to available injection locations becomes a very expensive proposition.

3) The cost of moving water to and from drilling sites.

Broader transport issues have already begun adding to the actual water costs of projects. On-site aquifers sufficient to service drilling pads (locations at which there are a number of horizontal wells being drilled) are not usually available. The water for the fracking must be trucked in, and, as already noted, the used water must be trucked out, either for reuse or disposal.

Aside from the damage done to road infrastructure from this water hauling, the cost of the transport itself will increase the water-related portion of operational expenses.

As the domestic search for oil and gas intensifies, we have hundreds of thousands of wells coming over the next decade.

Well before serious questions emerge about whether there is sufficient water, the increased costs resulting from using water in drilling could impact significantly on the profitability within broad parts of the energy sector.

The drive to develop more efficient ways to use water, combined with pioneering non-water approaches, is rapidly becoming a priority.

And whenever that happens, there are always new investment opportunities resulting in technology and application.

I’m tracking them carefully.

Sincerely,

Kent

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  1. Richard
    May 28th, 2013 at 10:29 | #1

    Hi Kent, having read your article on the cost of water that’s involved in the fracking process.. I was wondering what your thoughts are on the company Gasfrac and their LPG fracking technology?

    regards

    Richard
    United Kingdom

  2. Jim Brown
    May 28th, 2013 at 10:34 | #2

    GeaFrac Energy Services Inc. (GSFVF)$1.73
    No water used.

  3. Nick Fazzolari
    May 28th, 2013 at 10:59 | #3

    Kent, what are your feelings about NES (fomerely know as Heckman)? They appear to have cornered the market for water reclamation but the stock never moves.

  4. David Goldman
    May 28th, 2013 at 11:14 | #4

    As you know so well Dr Moors, that little “diamond in the rough” Ecosphere Technologies in Stuart FL IS the answer to all of the absurdity to trucking water off site for purification. ET does it ONSITE and IS part of the answer to the enviro-concerns re: fracking. Please turn your readers on to this great company-it’s time! Keep up the great work-Your advice has been amazing!
    DG

  5. Eric Townsend
    May 28th, 2013 at 20:07 | #5

    Dr Moor are you aware of the 178 page study by independent geologist David hughes published in february by th epost Carbon Institute and his claims in relation to the Us Shale and Gas Wells and there future long term production and could you comment on his findings which are extermely negative egarding long term production and therefore earnings.

  6. Andy J
    May 28th, 2013 at 22:08 | #6

    I have followed fracking technology for years and propane and mixed gas fracking for the last several… With the advancements which have been made in gas fracking; increased production, lowered cost and the recover of the gas in a closed system, which can be captured and reused, will make this the technology of choice in the near future… As the over all cost of gas fracking decreases and the over all cost of hydro fracking increases the pace will quicken… Over the past several I found buying opportunities in gas technology and divested three hydrofrackers to establish a meaningful position… The next two/three quarters should be very interesting…

  7. Ernest Hoppe
    May 28th, 2013 at 23:34 | #7

    I work for Trican Well Service and the research and development department has made good progress with reusing flow back fluids from fracks. The department that I work in is Nitrogen and one of its uses in the oil patch is to nitrify the frack fluid which reduces the amount of fluid required for the job. There is hope.

  8. de Montet Nicolas
    May 29th, 2013 at 10:36 | #8

    Dear Kent,
    In the current state of development the hydraulic fracking should be banned for its use of highly toxic chemicals and staggering amount of water.
    The LPG method from GASFRAC is more economical, uses no water but liquefied petroleum gas almost fully recoverable.

    Regards
    Nicolas
    Switzerland

  9. Michael Garrison
    May 29th, 2013 at 11:07 | #9

    Dr. Moors,

    Can you comment on companies that specialize in converting salt water to clean, usable water? The need for fresh water continues to increase and we seem to be ignoring the obvious solution. Can you recommend companies that are the leaders in this industry?

  10. Chuck S
    May 29th, 2013 at 13:24 | #10

    I read that they’re drilling multiple wells at one location. It seems like they should be able to take the water out of one well and pump it down another.

  11. Richard
    May 30th, 2013 at 13:27 | #11

    @de Montet Nicolas

    Yes Nicolas… Gasfrac is the way forward… get invested in this stock before 2nd quarter results are announced in August.

    Richard
    UK

  12. June 24th, 2013 at 12:43 | #12

    Concerning water quality and hydro-fracking, let me say it again, and again, and again. Nepheline Syenite, Nepheline Syenite, Nepheline Syenite, Nepheline Syenite, Nepheline Syenite.

    Barry Murray, Editor of MiningMagazines.com

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