The management of water produced by the US shale industry is increasingly controversial for operators, reveals a new report from Rystad Energy. Even though total volumes produced are expected to reach new records in the coming years, treated water is expected to be comparatively lower than in the past, despite water disposal practices increasing the seismic activity of oil fields, with earthquakes nearly doubling in West Texas in 2021 alone.
The future growth of shale activity in the United States is tied to an inevitable increase in produced water, as hydraulic fracturing for hydrocarbon production results in larger volumes of water. Therefore, as high oil prices boost shale activity in major basins, produced water levels in U.S. onshore oil fields are expected to return to an all-time high of 22.9 billion barrels in 2022, or an increase of 8% compared to 2021. New records are expected from 2023 to 23 billion barrels, reaching 23.8 billion barrels in 2026. Fracking activity alone will increase by 7% in 2022.
When the water is treated, the removal of salt water (SWD) by underground injection which has been linked to greater seismic activity is avoided. In absolute figures, the quantity of treated water increased to 1.9 billion barrels in 2021, against 1.6 billion in 2020, and is expected to fluctuate between 2 and 2.2 billion barrels until 2026. However, what is the expected increase in the absolute volume of Treated water does not show the amount of untreated water remaining, which is expected to reach an all-time high of 20.9 billion barrels in 2022 and then steadily increase to 21.6 billion barrels in 2026.
In percentage terms, the volumes treated reached their highest level in 2018 and 2019, representing 9.4% and 9.6% of the total volumes of water produced, respectively. Rystad Energy’s outlook until 2026 shows that such levels will no longer be achieved. In 2020, the percentage of treated water fell to 7.6%. In 2021, it reached 8.9%, and between 2022 and 2026, it is expected to fluctuate between 8.7% and 9.2%.
The trend is worrying, particularly in light of the boom in seismic activity in West Texas as revealed by Rystad Energy seismic data analysis. Earthquakes in West Texas with a magnitude of over 2.0 nearly doubled in 2021, from 1110 to 1900. Due to pressure on E&P to demonstrate ‘greater ESG responsibility, the need to treat and recycle water is more important than ever.
Coupled with the declining availability of fresh water in some of the shale basins in the United States, an alternative to using fresh water in the hydraulic fracturing process is much sought after.
“The oilfield water market is set for a very interesting year 2022. M&A activity, regulatory responses to induced seismicity, and increasing volumes of produced water in the lower 48 US states have all set the stage in 2021 for what will certainly be the most severe market conditions. dynamic in a growing oilfield segment, ”said Ryan Hassler, senior analyst at Rystad Energy.
Despite the buzz of activity and investment in the water recycling segment in much of the Permian and DJ Basin, disposal volumes are expected to increase further year over year through 2026 The volumes of water removed are expected to increase from 11.5 billion barrels in 2021 to 13.4 billion barrels by 2026. In most cases, SWD capacity remains plentiful, with almost no bottlenecks. at the basin scale. However, localized constraints are evident in specific areas such as Northern Culberson County or Howard and Midland Counties.
SWD well clusters with extreme use of volume and pressure exist in these regions, therefore experiencing an exponential increase in seismic activity. In 2021, seismic activity of magnitude 2.0 or greater increased 74% in West Texas from 2020 levels, with Culberson County alone seeing a 112% increase. Martin, Howard and Midland counties also observed similar increases in seismic activity.
In response to such disposal activity, the Texas Railroad Commission (RRC) has imposed unprecedented SWD restrictions in recent months. The first response came in September and October 2021, when the RRC identified two Seismic Response Zones (SRAs), namely SRA Gardendale and SRA Northern Culberson-Reeves. These regions have seen SWD capacity reductions, strict reporting guidelines, and a moratorium on all new SWD permits for at least a year.
By doubling the effort, the RRC recently ordered the suspension of all storage well licenses injecting produced water into injection wells deep below the top of the Strawn Formation, and in particular the Ellenburger Formation in the SRA Gardendale. The action concerns 33 deep storage wells operated by 14 operators, for a total authorized storage capacity of nearly one million barrels. The ordinance came into effect on December 31, 2021. Of the 33 wells, 25 are currently active, two are inactive and six have been licensed but are awaiting drilling services. Of the 14 operators, ConocoPhillips experiences the greatest loss of disposal capacity, with a total of 186,000 closed barrels, followed by Rattler Midstream at 150,000 barrels and Wasser Operating and Fasken Oil and Ranch each with a loss of 120,000 barrels of authorized disposal capacity. SWD operators in the Northern Culberson-Reeves SRA must now wait patiently to understand the full regulatory response that could come to them after observing the plight of their peers in the Gardendale SRA.
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In addition to the two SRAs, the RRC has identified three other Seismic Investigation Regions (SIRs), which it deems at high risk of moving to SRA status, resulting in effective capacity reductions, moratoriums on all new permits and potential suspensions as in the Gardendale. All in all, the Texas RRC has halved the SWD capacity in the ARSs under current guidelines. Water operators and intermediaries, including ConocoPhillips, Rattler Midstream, NGL Energy Partners, Coterra Energy and Chevron, risk losing up to 50% of their disposal capacity in key areas.
Although the annual growth of the recycled water market is expected to increase, the produced water is expected to grow at roughly the same rate, which means that disposal remains a critical part of the process. Given the current regulatory environment and the potential for even more restrictive measures, the cost of disposing of a barrel of water in the Permian Basin is likely to only increase. Options exist outside of treatment, such as piping longer distances to underutilized SWD wells in an adjacent area or even further distances outside the basin in the central platform where the seismic risk is minimal. Of course, the cost dictates the adoption of such solutions.
The best way to guard against regulation and costs is to invest now in the recycling network needed to treat future barrels of water. In the last round of sustainability reports, many operators were more transparent about their water management, reporting standardized metrics that the investment community can analyze. In 2022, there will likely be even more frameworks in place to calculate ESG scores and compare operators on their water management practices, much like on emissions. Investments must be made today to get a head start and position ourselves well for 2022.
By Rystad Energy
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