BOSTON – The US hydraulic fracturing (fracking) industry consumes over 1 billion barrels of water annually, producing 450–500 million barrels of contaminated water for disposal, with only about 14 percent treated and re-used. With water supplies increasingly at risk, tighter regulations emerging in key states, and costs of disposal on the rise, water treatment and re-use is expected to increase substantially, accounting for 27 percent of total produced and flowback water by 2020, according to a new report from Bluefield Research.
Wastewater treatment spending for fracking is expected to grow almost three-fold, from $138 million in 2014 to $357 million in 2020, according to Bluefield. Overall, the U.S. fracking industry will spend $6.38 billion in 2014 on water management– water supply, transport, storage, treatment, and disposal. Water transport and disposal costs will account for 66 percent of the total water management spend this year, with treatment comprising roughly 2 percent.
Water scarcity in Western U.S. states has had little impact to date on fracking water supply, but that is likely to change if droughts persist. Meanwhile state regulators are beginning to tighten control of produced water disposal. In Pennsylvania, where state policymakers in 2010 placed discharge limits on wastewater from unconventional oil and gas operations, statewide treatment and reuse rates for the Marcellus Basin have jumped to 90 percent in 2014.
The increasing cost of transport and injecting water into wells− now accounting for 66% of water services spending− and the improving cost structures of treatment provide another driver of reuse. According to the Bluefield Research report, well operators that employ treatment and reuse solutions spend on average US$8.80 per barrel of water used compared to US$10.20 per barrel of water trucked and injected into wells, although cost comparisons are site specific.
“Fracking has been the wild west for the U.S. water industry,” said Reese Tisdale, President of Bluefield Research. “There are three reasons for this– first, there has been an explosive build-out of fracking well installations, now surpassing 126,000. Second, there has been a lack of clear regulation on water management in key markets. And third, there is not a one-size-fits-all treatment solution for fracking, meaning solutions providers have had to ascend a steep learning curve to treat the variable wastewaters that a single well is capable of producing.”
Tisdale notes that these inhibitors, while still acute, are beginning to take on a new form. This is partially due to significant gains in water management experience, realized adoption of more efficient water management strategies among well operators, and the emergence of new policy mechanisms from regulators that are playing catch-up with the fast-moving fracking industry.
For example, the Texas legislature passed HB 2767 in 2013 to encourage greater reuse. The bill provides clarity into wastewater disposal risks by limiting a well operator’s liability after wastewater has been transferred to another company for treatment. New Mexico regulators are currently evaluating a similar policy.
Technology shifts are also creating new opportunities for treatment and reuse. Demonstrated commercial deployments from an emerging group of pure-play technology providers will provide a vote of confidence as operators look for reliable solutions that can cost-effectively treat wastewater of variable qualities over the life of a fracking well.
“Based on these key shifts in the market, Bluefield is forecasting a three-fold increase in the volume of fracking wastewater treated and reused by 2020,” Tisdale added.
With forecasted growth, a fragmented competitive landscape is emerging. Bluefield Research’s new report profiles 57 key companies active in the US fracking industry’s water management supply chain, categorizing them in three segments– pure-play water service providers, energy service providers, and key technology providers.
“The competitive landscape is in transition,” said Erin Bonney Casey, research analyst at Bluefield. “We are going to see firms with advanced water treatment technologies competing for business against diesel trucks over the next few years. Even though water treatment and reuse costs have proven to be nearly 15 percent lower than trucking and disposal in some cases, fracking companies have yet to fully embrace treatment.”
Bonney Casey points to strategic partnerships as a foothold for advanced water firms entering the market. These partnerships are critical at this early stage to demonstrate the bankability of new technology solutions and business models. Further, they enable companies to penetrate new shale plays and customer bases.
While new technologies continue to crop up in the market, mergers and acquisitions along US fracking’s water supply chain so far have been limited. According to Bluefield Research, there have been 15 water-fracking acquisitions over the past four years, with an average disclosed value of US$130 million.
“We expect considerable consolidation in the industry to 2020,” Bonney Casey added. “However, there is not one surefire solution yet for investors to snap up, and firms looking to be acquired must hit bankability milestones. Now is the time for these suppliers to position and establish themselves as industry leaders for the U.S. market.”
Water for U.S. Hydraulic Fracturing Market: Competitive Strategies, Solutions, & Outlook, 2014-2020 is a 110-page report offering in-depth analysis of the rapidly changing U.S. landscape for fracking water solutions and business strategies. This Market Insight has been developed to support water and energy service companies addressing the U.S. fracking market with detailed data, forecasts to 2020, and market trend analysis.
Learn more at www.bluefieldresearch.com/water-for-fracking-2014.