Bluefield Research: A rise in hydraulic fracturing pushing water management expenditure up

U.S. estimated water management and services spending by activity, 2017-2026

Image credit: Bluefield Research

According to Bluefield Research, a rise of drilling activity in the hydraulic fracturing sector has boosted demand for water management solutions in an industry that was flagging less than a year ago. According to Bluefield’s Market Insight, Water for U.S. Hydraulic Fracturing Market: Competitive Strategies, Solutions, and Outlook, 2017-2026, with the increasing drilling activity, energy company’s expenditure on water management in the United States (U.S.) is set to rise 47 per cent by the end of 2017.

“Oil prices are up 62 per cent from last year, and the impact on water demand is following in step. This turnaround, from the industry’s collapse, has thrust upstream oil & gas into a new phase, one in which water services are even more critical at US$50 per barrel of oil,” President of Bluefield, Reese Tisdale, said in a press release.

Over the past half year, the stabilization of oil prices and new drilling techniques has created a surging wave of drilling activity and reversing the downturn water management spending was experiencing for hydraulic fracturing in past years. According to Bluefield’s analysis, energy companies are forecasted to spend more than US$136 billion from 2017 to 2026 on water management, which will include water disposal, storage, supply, transport, and treatment.

Rising innovation in the hydraulic fracturing sector – which includes techniques to drill faster in order to realise more production at each well – are leading to shifts in the arena of water strategies as well. Demand for water solutions is increasing at an exponential rate due to an increased volume of water per frack and around a 30 per cent reduction of time to see a well through to completion. In some basins, the completion of a well may need as much as 12 million gallons (45 million litres) of water a frack – three times the water volume needed half a decade ago.

Between 2017 and 2026, over 20 billion barrels of water will be needed to serve the U.S. hydraulic fracturing market when calculated at the present day’s rig count. However, now, the cost of water transport rather than the availability of water supplies has become energy companies’ primary concern, accounting for US$75.8 billion over the next ten years.

Tisdale added, “There are a number of ways companies are addressing the cost of transport, including water pipelines new business models, such as alternative water supply contracts, and mobile treatment.”

These shifts in the market will also influence the competitive landscape in both the energy and water arenas. The energy industry, laden with debt, has witnessed more than 110 bankruptcies in recent years, but those which remain will benefit from the experienced sector. Antero Midstream, NGL Energy, and Rice Midstream, among others, are set to leverage from their production companies’ positions in the energy sector.

The higher focus on the water industry has also resulted in an emerging group of midstream water service providers. Simultaneously, multiple private equity firms are positioning themselves to tackle the water industry’s issues through disposal, pipelines, and treatment.

“The value of water has clearly taken on greater financial importance for exploration and production companies. Cost reduction, efficieny improvements, and risk mitigation to water stress are a high priority,” Tisdale said. “However, there is not a one-size-fits-all approach to water management. High disposal rates and salinity levels are an issue in Marcellus, while seismic activity in Oklahoma is prompting tighter regulatory controls on disposal wells. Whatever the case, the signs are positive for water services companies.”