THE US DROUGHT AND ITS IMPACT: Water-intensive fracking spared ...
for now
New York (Platts)--2Aug2012/543 pm EDT/2143 GMT
As the great drought of 2012 continues its turf-cracking domination
of the summer, fears of the impact on the US power sector are proving
empty through the first week of August.
And in another energy-related area where water is a huge issue -- the
use of hydraulic fracturing in exploring for natural gas -- the impact
has also been minimal so far. But fears are being expressed about what
the future might bring should the drought drag on.
Platts has surveyed the electric power supply chain looking for
disruptions. So far, they appear to be minor, with more reports of
smooth operations than any problems.
n this multi-story series, we take a look at the impact on the power
generation sector, the gas producing sector, and the coal market.
CAN THEY STILL SHOOT ALL THAT WATER DOWN THE WELL?
The impact of the drought gripping much of the US is not yet being felt
by the oil and gas industry in terms of slowing the pace of drilling or
fracking, but a continuation of the same extremely dry weather could
result in an industry-wide move toward drilling techniques less reliant
on the use of fresh water, sources said.
"From what we're hearing ... there hasn't really been an impact," said
Daphne Magnuson, a spokeswoman for the Natural Gas Supply Association.
"In Texas, oil and gas production remains strong despite drought-like
conditions throughout the state," said Rich Varela, senior vice
president of the Texas Independent Producers and Royalty Owners
Association.
"Nonetheless, operators are sensitive to the ongoing drought, and water
management continues to be a top priority for producers, including those
in the Permian Basin and the Eagle Ford Shale, where there has been
record levels of drilling activity," Varela added.
Numerous factors -- access to water sources, levels of rainfall,
geology, and regional water-use regulations -- account for differences
in how producers in various US producing basins are dealing with the
drought.
In the Eagle Ford Shale of southern Texas, most of the water used in
drilling and fracking comes from deep underground aquifers, while in
other regions of the state and in other basins, producers rely on
surface water from streams, lakes and rivers for their water needs.
It takes about 150,000 gallons of water to drill a well in the Eagle
Ford and about 6 million gallons to perform a hydraulic fracturing job
on the well. While this might seem like a lot, experts say fracking only
accounts for about 1% to 2% of total water use in the counties of south
Texas.
For now, the extreme drought in the Southwest "is not a limiting factor
on oil and gas in Texas right now for a lot of reasons," said David
Blackmon with FTI Consulting.
"We tend to get our water from groundwater reservoirs," including the
deep Carrizo-Wilcox Aquifer that serves the Eagle Ford Shale region. But
"in some of these other parts of the state you have to get more
creative," Blackmon said.
Some Texas operators, for example, are turning to the use of recycled
wastewater sold by municipalities and manufacturing plants. "That's
becoming more common in the Permian Basin and other parts of the state,"
he said.
A similar situation arose several years ago when gas production began
ramping up in the Haynesville Shale of northern Louisiana. "You didn't
have plentiful groundwater aquifers. The state wanted us to take water
out of the rivers," Blackmon said.
Several drilling companies began buying water for their frack jobs from
International Paper, which operated a large manufacturing plant on the
outskirts of the Haynesville Shale that consumed "a tremendous amount of
water for its own purposes."
Dan Hardin, director of water resources planning for the Texas Water
Development Board, said the oil and gas industry "is expanding the use
of what we now consider non-potable water. We see that as being one of
the potential future solutions not only for oil and gas but for other
industries as well."
The board, which plans out the state's water policy in five-year cycles,
expects water demand for fracking "to triple over next 10 years in a
number of smaller counties," particularly in the Eagle Ford region,
Hardin said.
In Appalachia, where the Marcellus Shale drilling boom has caused water
usage to surge, industry officials are keeping a close eye on the
below-normal water levels caused by a dearth of precipitation.
On July 16, the Susquehanna River Basin Commission announced that 64
separate water withdrawals, including those by production companies such
as Chesapeake Appalachia and Talisman Energy, would be suspended due to
lower stream flow levels in the basin.
SRBC spokeswoman Susan Obleski said Thursday the number of suspensions
has since been reduced to 29.
Officials with some of the companies subject to the suspensions,
however, said this week that gas drilling activities have largely been
unaffected.
"We're monitoring conditions across the country, but have not made any
modifications to our operations as a result of the drought at this
point," said Jeff Neu, a spokesman for ExxonMobil division XTO Energy.
Gene McGillian, a broker with TFS Energy Futures, said that while the
impact of the drought on production levels is "something we're watching
pretty closely," drillers seem to have prepared well for it, mainly
through storage and water reuse plans.
In 2011, Devon Energy began construction of a facility to allow for the
reuse of flowback water from development drilling in the Cana Woodford
Shale, according to spokesman Chip Minty.
The system, which includes a holding reservoir and pipeline system,
began operating in 2012 and has largely insulated production in the
Oklahoma play from the drought, Minty said.
"That has significantly reduced our demand for water from the area,"
Minty said. "It doesn't eliminate our need for fresh water, but it
reduces it. It's really helped us curb our water demand during drought
conditions like this."
Travis Windle, a spokesman for the Marcellus Shale Coalition, said that
because of the high level of water recycling by E&P companies active in
the basin, "there's been no impact," on operators from the drought. "The
technologies that have been pioneered in the Marcellus allow our
operators to recycle more and more of the water needed," he said.
--Jim Magill, jim_magill@platts.com
--Brian Scheid, brian_scheid@platts.com
--Henry Webster, henry_webster@platts.com
--Kassia Micek, kassia_micek@platts.com
--Cathy Cash, cathy_cash@platts.com
--Ellen Stodola, ellen_stodola@platts.com
--Edited by Keiron Greenhalgh,
keiron_greenhalgh@platts.com
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