Wastewater problem could cap US shale growth

The US oil industry continues to struggle to solve its wastewater problem, and a newly proposed bill could make wastewater disposal even more difficult.

Hydraulic fracturing, the technology that made the United States the world’s top oil and gas producer, has earned a really bad rap. Much of this ill reputation has had to do with increased seismic activity in shale oil and gas regions. But research cited by the US Geological Survey showed a few years ago that it’s not fracking itself that is the problem. 

The problem is the disposal of wastewater, and it is not going away.

Earlier this month, Rystad Energy warned in a report that the number of seismic events in key oil-producing regions has been on the rise. Since 2017, quakes of a magnitude above 2.0 had quadrupled. Seismic activity will increase further this year, Rystad analysts added, if the US oil and gas industry continued to produce hydrocarbons the same way.

The amount of water that is used in the drilling and fracking of shale oil and gas wells varies widely. It can be anywhere from 1.5 million gallons to 16 million gallons, according to the US Geological Survey. But that was several years ago. Since then, water use has only grown as fracking activity has increased.

After drilling and fracking, the used water—typically called produced water—is disposed of in underground injection wells. The more water is injected, the more likely seismic events become because, put simply, millions upon millions of gallons of water injected into rock formation change the pressures in this formation, triggering increased seismic activity. Now, the USGS makes a point of noting that not all wastewater injection wells will lead to an increased likelihood of quakes. Still, the data cited by Rystad Energy indicates that even if some wells lead to more quakes, it’s bad enough. Since the start of this year, the consultancy noted, there have been 11 earthquakes in Oklahoma, Texas, Louisiana, and New Mexico with a magnitude of above 3.5. This compares with 14 such events for the whole of 2020 and six in 2018 and 2019 each.

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Now, someone with a grim sense of humor might say quakes are a good indication of the recovery of oil and gas drilling after the worst of the pandemic, but the 2020 number is worrying because it was recorded in a year when drilling activity was severely depressed because of the pandemic. Indeed, the Rystad data showed that last year oil and gas drillers disposed of 11.3 billion barrels of produced water, down from 12.4 billion barrels a year earlier and 11.5 billion barrels in 2018. Yet seismic activity increased even further last year.

Drilling activity is also increasing now that oil prices have recovered faster than many expected. The increase is still cautious as upstream companies still remember the devastating blow their industry suffered last year. Yet demand is growing. This could lead to not only higher prices still but more drilling and, consequently, more wastewater disposal. Alternatively, it could lead to more water recycling and reuse.

A local Texas daily reported this week that one water recycling and reuse company was expanding its operations in the Permian in anticipation of a further rise in drilling production. The company, Breakwater Midstream, operates ten water recycling facilities in the area and plans to build another two. The company’s CEO, in comments on these plans, noted increased seismic activity in the region as one of the reasons for the growing demand for produced water treatment facilities.

Indeed, recycling and reuse is the most obvious alternative to dumping billions of gallons of water in wells, some of which would trigger increased seismic activity. 

But this is not cheap.

“To maintain water disposal at 2020 levels and offset its coming growth, the amount of water that is treated and recycled must instead grow going forward and the cost of doing that could accumulate to above $1 billion annually for oil and gas producers. The costs can vary per region, but the Permian Basin has very competitive economics compared to other areas,” said Rystad shale analyst Ryan Hassler in the consultancy’s report on seismic activity in the US shale patch.

What’s more, this amount will be growing as more drilling leads to more water use and therefore, more demand for produced water treatment. At the same time, in some positive news, as Rystad notes, Breakwater Midstream is by far not the only company expanding its water treatment operations. The more companies offer these services, the cheaper they should become. Yet, there is a twist.

A Democratic Congressman this month tabled a bill that could reclassify wastewater from oil and gas drilling operations as hazardous waste. This would obligate companies producing it to dispose of it in specially designated Class I disposal wells. To compare, currently, produced water is disposed of in Class II wells. There are close to 200,000 Class II wells. There are fewer than 300 Class I wells. If this bill becomes a law, any growth in the US shale oil and gas industry that Rystad and others are forecasting would be stumped severely, at least until wastewater processors build the necessary capacity to treat most of the water used in well drilling.

This article was originally published on Oilprice.com