Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
The Permian Basin leads demand growth in oilfield water management market
08 August 2019IHS Markit Energy Expert
IHS Markit recently estimated the US oilfield water management
market to now be valued somewhere around $37.5 billion. That
represents a 12% year-on-year market growth from 2018—mainly
driven by water disposal and water hauling. On our recent podcast,
our experts Paola Perez Pena and Prescott Roach give us an overview
the market, including how the Permian Basin plays a part. Listen to the full podcast.
Jessica Nelson:
Paola, can you put that $37.5 billion in perspective for us and
provide an overview of the water management market?
Paola Perez Pena:
Our valuation is the result of the analysis of the whole value
chain of the market. We have multiple segments and each of them
behave and contribute differently to our estimation of the market
value. From our valuation, hauling and disposal of water account
for 65% of total spending in this year. These two segments are
becoming more critical for oil and gas operations in the US, as we
produce five times more water than oil. The remaining spending
comes from segments such as sourcing, water treatment and flow back
services. As more water gets reused, we expect water treatment
spending to increase while sourcing spending to decrease.
The reason why hauling and disposal are so relevant is because
these segments manage 90% of the water use in the oilfield. The
more wells we drill with longer laterals, the more water these
segments will need to manage. Let me give you some numbers so I put
this in perspective. We talk about flow back water. This water has
increased more than 24% in the last couple of years, mainly driven
by Permian activity. That's quite a drastic increase just for flow
back water.
Now, if we add produced water, we expect to produced water to
increase 4% this year and continue this trend in the next five
years as we move from core regions to more water saturated
areas.
Hill Vaden:
Paola, is the flow back water…you said 4%?
Paola Perez Pena:
The flow back water is actually 24% increase in the past couple
of years because we've been drilling longer laterals. Per well, we
need more water and that's what it has driven this dramatically
increase in the flow back water.
Hill Vaden:
Okay, so that's the water coming back from the water brought
into the completion job as opposed to formation water.
Paola Perez Pena:
Exactly.
Hill Vaden:
Okay, but the formation water, I think you were saying, was a
much larger contributor to the overall water challenge.
Paola Perez Pena:
Exactly. It is actually, the produced water. Let me give you
numbers actually. We're expecting this year to have just in
produced water, 19 billion barrels of water. That is, if you put it
in perspective for those that are familiar with the Houston area,
is almost four times all the water in the Lake Conroe. That is a
lot of water that we're just going to produce from oil and gas
industry.
Hill Vaden:
All from the Permian or across North America?
Paola Perez Pena:
Yeah. It's just a lot of water. Let me clarify here. These
numbers are for the US. The flow back water increase is an overall
number of the US, as well as the produced water.
Hill Vaden:
Is that inclusive of offshore?
Paola Perez Pena:
It is onshore unconventionals.
Hill Vaden:
Onshore US, okay, great.
Paola Perez Pena:
Yes, thanks for clarifying that. The way the industry is
managing this water is pretty much 40% is used for EOR injections,
50% goes into salt water disposals, and the remaining volumes get
recycled. As produced water increases in the next couple of years,
we expect to see more water being recycled and more technologies
coming into the industry. However, we still believe that salt water
disposal will continue to be the primary method of injection due to
economics. It's very cheap for operators to just go and dispose the
water using salt water disposal. We see this continuing in the next
couple of years.
Hill Vaden:
How does that compare to prior years? Is that, with the
economics of saltwater disposal so attractive, is recycling kind of
flat at 10%?
Paola Perez Pena:
No, recycling has increased definitely. If we look at three
years ago, we were seeing like just maybe 2 or 3%, very, very
little recycling, and all coming from the Marcellus Shale, just
because there is not a lot of disposal wells in Marcellus and
Utica. They were forced to recycle water. But, then as we produce
more water and the industry sees a need for an increase in
recycling due to limitations in sourcing, so this recycling is
increasing, right? It's increasing also because new technologies
are coming into the market and prices are going down for some
operators. These trends that we've seen in the past year, we expect
to continue going. We're talking about going from 10 to maybe 20%
in the next 5 years. This is our estimation. I've heard some people
in the industry saying 50% in the next 5 years, which I think is a
little optimistic, but we never know.
Maybe there's some new technologies coming into the market and
really dropping those prices. We'll see what happens, but it will
mainly depend on the technology development and how the cost
decreases and are more competitive compared to disposal
economics.
Jessica Nelson:
You went through quite a few numbers there, and maybe I missed
it. Where's the biggest chunk of the water expenses? Is it
disposal? Is it hauling of the water? You said it was cheaper than
the recycling at this point, but where is that expense coming
from?
Paola Perez Pena:
The biggest chunk is definitely coming from hauling. We have
multiple segments in the market, right? We have the disposal, we
have the recycling. Then, we also have kind of like the logistics -
and hauling goes into the logistics section. If you compare hauling
and disposal, the main two segments from the whole market,
definitely hauling is the biggest chunk of the water expense,
because it accounts for around a third of the total spending in
water management. We estimate that around 10 billion of water will
be transported in the US via truck. This is just a lot of water
that is going to need a lot of logistics and is going to be very
challenging in terms of cost, which is as more trucks are needed
per well, the costs are increasing. This is why the big chunk of
spending is there, just because the demand for trucks is increasing
and trucking in general is just expensive compared to just
transporting water via pipeline.
Jessica Nelson:
Are there similar constraints? I know we've heard over the past
few months about supply constraints coming out of the Permian in
particular. So, mentioning this hauling demand, is that a
constraint that you're seeing also?
Paola Perez Pena:
The Permian had constraints in pipeline just for oil production.
We do see there's definitely need for infrastructure in the
Permian. This is mainly due to the fact that we need to reduce
costs. If we have more pipelines to transport the water, the costs
are definitely going to decrease. There is definitely a need for
that, but so far the industry is using trucks most of the time.
It's just a mix. If you think about what is happening this
particular year, where operators are being more cautious with their
capex, I don't see a lot of investment going into a pipeline. It's
needed to reduce cost. If operators don't decide to put the capex
towards that and prioritize water, then we'll have to keep using
trucks and just like getting those costs increasing as there is
more demand.
Hill Vaden:
Is the lack of investment…is it just not the economics, it's not
that big of a contributor negatively to the economics to really
prioritize it in the way that other investments are going?
Paola Perez Pena:
That's a good question. I'm not sure how much the cost has to
increase to make it relevant into the economics. I'm pretty sure
the operators have these numbers in their analysis, but what I've
seen is few operators announcing they want to invest in pipelines,
but mainly like a water specialist or third-party companies are
more inclined to do that. That makes me think that the operators
are not as worried with the increase due to water transportation as
of today.
Prescott Roach:
Just as a general rule of thumb on that, the economics of moving
water by a truck or by pipeline do differ quite a bit. Just very
approximately speaking, to ship produced water via a pipeline once
you've already built it out tends to cost somewhere in the
neighborhood of around 30 to maybe 60 cents per barrel of water,
whereas shipping it on a truck might cost us somewhere in the
neighborhood of about $3 or so.
Hill Vaden:
Wow.
Prescott Roach:
The difference between those two is definitely substantial, but
in terms of operators determining how they're going to allocate
their capex, it may just not be a big enough difference for them to
justify spending during a time of capital restraint.
This excerpt has been professionally transcribed as
accurately as possible. Please note, some words and phrases may
have been unintentionally excluded.