August 2, 2012 (TSR) – As the great drought of 2012 continues its turf-cracking domination of the summer, fears of the impact on the US power sector are proving empty through the first week of August.

And in another energy-related area where water is a huge issue — the use of hydraulic fracturing in exploring for natural gas — the impact has also been minimal so far. But fears are being expressed about what the future might bring should the drought drag on.

Platts has surveyed the electric power supply chain looking for disruptions. So far, they appear to be minor, with more reports of smooth operations than any problems.

In this multi-story series, we take a look at the impact on the power generation sector, the gas producing sector, and the coal market.


The impact of the drought gripping much of the US is not yet being felt by the oil and gas industry in terms of slowing the pace of drilling or fracking, but a continuation of the same extremely dry weather could result in an industry-wide move toward drilling techniques less reliant on the use of fresh water, sources said.

“From what we’re hearing … there hasn’t really been an impact,” said Daphne Magnuson, a spokeswoman for the Natural Gas Supply Association.

“In Texas, oil and gas production remains strong despite drought-like conditions throughout the state,” said Rich Varela, senior vice president of the Texas Independent Producers and Royalty Owners Association.

“Nonetheless, operators are sensitive to the ongoing drought, and water management continues to be a top priority for producers, including those in the Permian Basin and the Eagle Ford Shale, where there has been record levels of drilling activity,” Varela added.

Numerous factors — access to water sources, levels of rainfall, geology, and regional water-use regulations — account for differences in how producers in various US producing basins are dealing with the drought.

In the Eagle Ford Shale of southern Texas, most of the water used in drilling and fracking comes from deep underground aquifers, while in other regions of the state and in other basins, producers rely on surface water from streams, lakes and rivers for their water needs.

It takes about 150,000 gallons of water to drill a well in the Eagle Ford and about 6 million gallons to perform a hydraulic fracturing job on the well. While this might seem like a lot, experts say fracking only accounts for about 1% to 2% of total water use in the counties of south Texas.

For now, the extreme drought in the Southwest “is not a limiting factor on oil and gas in Texas right now for a lot of reasons,” said David Blackmon with FTI Consulting.

“We tend to get our water from groundwater reservoirs,” including the deep Carrizo-Wilcox Aquifer that serves the Eagle Ford Shale region. But “in some of these other parts of the state you have to get more creative,” Blackmon said.

Some Texas operators, for example, are turning to the use of recycled wastewater sold by municipalities and manufacturing plants. “That’s becoming more common in the Permian Basin and other parts of the state,” he said.

A similar situation arose several years ago when gas production began ramping up in the Haynesville Shale of northern Louisiana. “You didn’t have plentiful groundwater aquifers. The state wanted us to take water out of the rivers,” Blackmon said.

Several drilling companies began buying water for their frack jobs from International Paper, which operated a large manufacturing plant on the outskirts of the Haynesville Shale that consumed “a tremendous amount of water for its own purposes.”

Dan Hardin, director of water resources planning for the Texas Water Development Board, said the oil and gas industry “is expanding the use of what we now consider non-potable water. We see that as being one of the potential future solutions not only for oil and gas but for other industries as well.”

The board, which plans out the state’s water policy in five-year cycles, expects water demand for fracking “to triple over next 10 years in a number of smaller counties,” particularly in the Eagle Ford region, Hardin said.

In Appalachia, where the Marcellus Shale drilling boom has caused water usage to surge, industry officials are keeping a close eye on the below-normal water levels caused by a dearth of precipitation.

On July 16, the Susquehanna River Basin Commission announced that 64 separate water withdrawals, including those by production companies such as Chesapeake Appalachia and Talisman Energy, would be suspended due to lower stream flow levels in the basin.

SRBC spokeswoman Susan Obleski said Thursday the number of suspensions has since been reduced to 29.

Officials with some of the companies subject to the suspensions, however, said this week that gas drilling activities have largely been unaffected.

“We’re monitoring conditions across the country, but have not made any modifications to our operations as a result of the drought at this point,” said Jeff Neu, a spokesman for ExxonMobil division XTO Energy.

Gene McGillian, a broker with TFS Energy Futures, said that while the impact of the drought on production levels is “something we’re watching pretty closely,” drillers seem to have prepared well for it, mainly through storage and water reuse plans.

In 2011, Devon Energy began construction of a facility to allow for the reuse of flowback water from development drilling in the Cana Woodford Shale, according to spokesman Chip Minty.

The system, which includes a holding reservoir and pipeline system, began operating in 2012 and has largely insulated production in the Oklahoma play from the drought, Minty said.

“That has significantly reduced our demand for water from the area,” Minty said. “It doesn’t eliminate our need for fresh water, but it reduces it. It’s really helped us curb our water demand during drought conditions like this.”

Travis Windle, a spokesman for the Marcellus Shale Coalition, said that because of the high level of water recycling by E&P companies active in the basin, “there’s been no impact,” on operators from the drought. “The technologies that have been pioneered in the Marcellus allow our operators to recycle more and more of the water needed,” he said.

Source: Platts


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