Water management services market in US unconventional plays to grow 40% by 2022

Water management in unconventional oil and gas development is a complex operational challenge with significant impacts on an E&P operator's bottom line. Each play has a unique set of regulatory, geological, social, and economic conditions to navigate. Operators must choose a water management strategy for each well that manages cost, mitigates supply chain risk, and ensures well productivity.

Water management challenges-as well as the market for water management services-will grow significantly in many plays in the US. over the next ten years. My colleagues and I recently completed a study on The Future of Water in Unconventionals. Our research shows that, not accounting for inflation, we expect the continental US oilfield water management market to grow to $38 billion 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 $11.2 billion. This growth will span six water management services-acquisition, transfer, storage, treatment, hauling, and disposal-with a unique set of markets dominating growth in each play.

Water management market growth-and the regional differences in that growth-are driven not only by both increased oil and gas development and also by operational constraints posed by water stress, inadequate wastewater disposal, and regulation.

Water stress poses supply chain and production risk

While the total amount of water used annually for US oil and gas production is only about 0.1% of annual US agricultural water use, the impact of oil and gas water withdrawals can be significant in some water stressed areas. In Johnson County, Texas for example, E&P water use accounts for nearly 30% of total annual water use.* If an operator's water supply is cutoff, it could face delays as it searches for alternative water sources. Worse yet, well productivity can suffer significantly by using less water than planned; our research shows that the lost revenue can reach over ten million dollars per well.

Constraints on disposal capacity multiply water management costs

Inadequate underground disposal capacity for wastewater can also have significant cost implications for an operator. In regions facing high disposal capacity constraints, the total cost of water management can be more than twice the cost in unconstrained regions. Increasingly, operators are recycling wastewater as a way to mitigate the costs impacts of disposal constraints. In disposal constrained regions, it is typically cheaper to recycle wastewater than to inject it; a wastewater reuse strategy can reduce not only disposal costs but also other costs-acquisition, storage, transportation-throughout the water value chain. Nationally, approximately 16 percent of fracture fluid volume is made with recycled oilfield wastewater today. We expect this figure to double by 2022.

Regulation limits the water management strategies available to operators

Oil and gas operators face a complex set of operational, environmental, and water regulations from federal, state, and local authorities. There are significant differences from state to state, driven both by geology and public influence, and more stringent regulations can limit water management strategies or increase the cost of those strategies. For example, states like Pennsylvania and Colorado are setting a high standard for regulation of spills and on-site fluid handling that other states may follow. Similarly, increased public concern about seismicity due to underground injection of wastewater may cause regulators to constrain disposal capacity in new areas.

Given the regional diversity and uncertainty in all of these drivers, the US oil and gas water management market will be an interesting one to follow over the next ten years. At least one thing is certain: growth, change, and innovation-by operators, service providers, as well as regulators-will only continue in the years to come.

*Statistic source: "Water Use for Shale-Gas Production in Texas, US," 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.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.