1. 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

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

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

4. WATER USE IN THE US
From: USGS “Estimated Water Use in the US 2010:

5. Cumulative Groundwater Depletion (1900-2008)
From: USGS Available at: (last accessed 10/15/2016)

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

7. Produced Water for Beneficial Use
Quality
Quantity
Duration

8. 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

9. 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 AWRA Summer Specialty Conference, Sacramento, CA,

10. REGULATION
Federal
Energy
Water
State

11. 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.

12. MODELING FRAME 1

13. MODELING FRAME 1 _ _
+/- + +

14. MODELING FRAME 2
Where:

15. MODELING FRAME 2
FONC:

16. MODELING FRAME 3
Where:

17. MODELING FRAME 3
FONC:
Where:

18. 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.

19. 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 $ $17 per barrel
Opportunity cost of disposed water
$1 to $8 per barrel (IHS 2016)

20. 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

21. EXTERNALITIES OF DISPOSAL

22. 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

23. 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.

24. INCENTIVES

25. 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

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