Water-associated risks, including dwindling supplies and regulatory uncertainty, threaten to derail potential development of conventional and unconventional oil and gas resources if steps are not taken to curb the problem.

Such risks could have the biggest impact on global shale gas, Middle Eastern oil, and China's coal mining and coal-fired power plant operations, according to analyst Wood Mackenzie, which released a research report in late November on the issue. Considering that the United Nations expects a 40% shortfall in the resource by 2030, pressure is on the energy industry, which uses 15% of the world's freshwater supplies, to find solutions.

“The key water-driven business risks to the global energy industry include limited accessibility to new sources of supply, delays on project developments, increasing costs, and asset downtime,” said Tara Schmidt, manager of Wood Mackenzie's Global Trends Service. But the firm believes the industry will not only “progress forward with innovative technology but also with advancing water management practices and engaging in public policy to reduce shared water risks.”

Some companies have done just that by eliminating the use of fresh water from their operations, while others have substantially reduced its use by using saline water sourcing, recycling, and green completions, or waterless hydraulic fracturing. The environmentally conscious moves also could save companies money, as the firm noted that reducing water use in operations could cut the well cost by up to 20%.

The energy industry, which needs a volume of water more than the 14 Tcf annually carried by the Ganges River, is heavily dependent on water for drilling and well completions, EOR and in situ recovery, oil sands mining, and oil refining, the report said. But biofuels command the most water. For first-generation biofuels, up to 5 million liters of water are used for each ton of energy equivalent (toe) produced.

Conventional gas production uses the least amount of water, followed by unconventional gas production. The report pointed out that water dependency for unconventional gas production could be reduced to 100 liters/toe through use of technology such as water recycling.

That will be crucial for operations in places where water stress levels are high. These include Algeria, Saudi Arabia and Oman, all of which have great potential in terms of hydrocarbon production, including of tight and shale-gas reserves.

The Middle East, where nearly 93% of the oil reserves are in medium-risk to extremely high-risk water areas, already is feeling the effects of inadequate water infrastructure, according to the report.

“For instance, lack of water injection to Iraq's southern fields is hampering capacity growth at some of the country's biggest oil fields, costing the region's largest growing oil producer hundreds of thousands of barrels of oil per day,” Wood Mackenzie analysts said in the report. “In the water-stressed Middle East, water sourcing and treatment projects—even brackish water for oilfields—can face a number of delays and additional costs due to technical complexities, political constraints, and competing uses [eg agriculture and inefficient water management].

“In the longer term, opportunities to maximize production will face additional challenges with more water-intensive enhanced recovery, completion techniques and recent shale-gas exploration [eg Saudi Arabia],” the report said. “National oil companies also face the risk of lost export revenues to oil burn in desalination plants.”

Solutions could come in the form of desalination technologies for brackish water, using seawater as a water source, and encouraging conservation and more investment in efficient and alternative desalination energy sources, the report said. Saudi Arabia already is working to address such concerns by building a large solar seawater reverse osmosis plant.

Efforts also are being made in China, where Wood Mackenzie said coal production in water-stressed areas could rise 50% by 2030. Coal companies here are starting to recycle water, which is used to remove impurities from coal to meet air quality standards, investing in water-efficient technologies and working with others to find solutions. Such solutions include a government program in which coal producers and power companies can use municipal wastewater treatment plants or coal-mining wastewater as alternative water sources, the report said.

“The big questions for energy companies are what future regulatory uncertainty they could face, where assets are located in water-stressed areas, and how they respond to rising water-driven business risks,” Wood Mackenzie said. “If companies fail to rise to the challenge, there could be troubled waters ahead—posing risks to companies' growth and the future energy-supply mix.”

—Velda Addison