Optimizing Production of Hydrocarbons and Water: Incentives for Goods and Bads Janie M. Chermak - University of New Mexico Robert H. Patrick - Rutgers University Presented at 34th USAEE/IAEE Annual North American Conference Tulsa, OK Oct 24, 2016

OIL AND NATURAL GAS PRODUCTION 2012: ~21 billion barrels of water associated with production From EIA Production data www.eia.gov

P\PRODUCED WATER DISPOSITION Veil, J.E. (2015). US Produced Water Volumes and Management Practices in 2012. in the United States report prepared for Groundwater Protection Council,

WATER USE IN THE US From: USGS “Estimated Water Use in the US 2010: http://pubs.usgs.gov/circ/1405/

Cumulative Groundwater Depletion (1900-2008) From: USGS Available at: http://water.usgs.gov/edu/gwdepletion.html (last accessed 10/15/2016)

POTENTIAL WESTERN WATER SHORTAGES Moderate Substantial Highly Likely US Department of the Interior: Water 2025: Preventing Crisis and Conflict in the West (2003)

Produced Water for Beneficial Use Quality Quantity Duration

QUALITY Total Dissolved Solids (TDS) Oil and grease Suspended solids VOC’s Heavy metals Radionuclides Dissolved gases and bacteria. Chemicals Varies by field Society of Petroleum Engineers (2013) “Challenges in Re-using Produced Water http://www.spe.org/industry/challenges-in-reusing-produced-water.php

DURATION Fruitland Formation: San Juan Basin, NM From Kalhor, E., K. Zemlick, J.M. Chemak and C. Benedict “Data Management and New Mexico’s Energy-Water Nexus” Presentation at the 2016 AWRA Summer Specialty Conference, Sacramento, CA,

REGULATION Federal Energy Water State

MODELING EFFICIENT PRODUCTION Profit incentives for the competitive firm producing oil and disposing of produced water; producing oil and recycling and/or disposing of produced water; Social incentives for produced water.

MODELING FRAME 1

MODELING FRAME 1 _ _ +/- + +

MODELING FRAME 2 Where:

MODELING FRAME 2 FONC:

MODELING FRAME 3 Where:

MODELING FRAME 3 FONC: Where:

BENEFITS AND COSTS Private Benefits depend on uses and alternatives, Social Benefits depend on uses, substitutions, and externalities Disposal costs depend on type of disposal and distance Recycling Costs depend on type of treatment, distance, and final use (quality) Negative externalities depends on the specific externality water contamination, earthquakes, etc.

REVENUES OR BENEFITS Examples Price of Recycled Water Depends on the Use Value of Water James et al. (2014): CO River Study 100% Reduction in Water - $143 Billion $7.21/barrel Howitt et al. (2015): Impact of CA Drought 2015 Drought - $2.74 billion impact on CA <$0.01/barrel Summit Economics (2009) – Water and the CO Economy Range of $0.92 - $17 per barrel Opportunity cost of disposed water $1 to $8 per barrel (IHS 2016)

Costs Examples Cost to produce 10% to 49% of cost per barrel oil equivalent (IHS, 2016) Cost of disposed water $1 to $8 per barrel (IHS 2016) Negative Externalities

EXTERNALITIES OF DISPOSAL

CURRENTLY Produced water is used for hydraulic fracturing when it is less expensive than other sources Suggests the costs are too great for private viability

INCENTIVES to recycle water can be provided by policies that increase the value of recycled water, increase the costs of produced water disposal, and/or reduce the costs of recycling water.

INCENTIVES

CONCLUSIONS Produced water approximately equal to that used by the the 10 largest cities in the US Increased water stresses in the western US Less than 1% of produced water is re-used Regulations and policies are not compatible with re-use

THANK YOU jchermak@unm.edu rpatrick@rutgers.edu