WoodMac examines rising water risks for oil, gas industry

The oil and gas industry increasingly will mitigate water-related business risks using technology and transparency in future years when world water supplies are forecast to become scarce, said a report from Wood Mackenzie Ltd. which used data and analysis from the World Resources Institute (WRI).

WRI’s Aqueduct Risk Atlas surveyed water risks among the world’s top energy-producing regions. Researchers found the highest water risks to involve US shale gas plays, coal production, and coal-fired power in China, and crude oil in the Middle East.

The WoodMac report on water risks and the global energy industry noted that individual oil and gas companies can mitigate specific water risks by understanding operational water requirements, identifying water-driven business risk, and developing a clean-water strategy.

Water for shale plays

More than 50% of US shale and tight gas reserves are found in areas of medium to extremely high baseline water stress. Oil and gas companies must compete with industries and agriculture in seeking water supplies in certain areas, such as the South Texas Eagle Ford.

Shale and tight gas drillers use a small percentage of water compared to other industrial users, WoodMac said, adding that individual wells need large volumes of water during short periods of time for hydraulic fracturing.

“These short but intense demands add up and can threaten to displace other water users,” WoodMac said. “Over time, freshwater availability in shale development areas could decline as demand from homes and farms starts competing with hydraulic fracturing operations.”

Water supply is a global concern. In the 10 countries having the largest shale and tight gas reserves, 60% of reserves are in areas facing medium to extremely high baseline water stress. Energy companies operating in these areas can expect water supply and water pollution concerns to increase.

“Some energy firms have already started planning risk-mitigation strategies to account for potential scarcity, even though they are costly,” WoodMac said. “Unless all stakeholders work together to protect shared water resources, risks will steadily increase.”

For instance, Antero Resources Inc. plans to spend more than $500 million on an 80-mile pipeline to secure water supply for its shale development, the report said.

Middle East risks

Oil production in the arid Middle East faces various water risks, WoodMac said. When it comes to water supply, the report noted that nearly 93% of the Middle East’s onshore oil reserves are exposed to medium to extremely high overall water quantity risk.

Middle East oil development and production already faces water-infrastructure constraints, and growing oil demand for local desalination needs will exacerbate the situation, WoodMac said.

A lack of water injection to Iraq’s southern fields is hampering capacity growth at some of that country’s largest fields.

In addition, inadequate desalination or other water infrastructure across the Middle East can disrupt ongoing projects, delaying oil drilling, production, and processing, said WoodMac’s report. Meanwhile, domestic desalination consumes energy resources that could have been exported.

Saudi Arabia sells oil to power and desalination plants at about $4/bbl compared with about $100/bbl that it can get for oil exports.

Contact Paula Dittrick at paulad@ogjonline.com.

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