Courtesy of The Wall Street Journal, an interesting report on the watergy nexus:
Water shortages are threatening energy output and increasing costs in some of the world’s most prolific sectors including shale gas in the U.S., crude oil in the Middle East and coal in China, and the situation is set to worsen, Wood Mackenzie said Thursday.
The energy sector is already the world’s largest consumer of water for industrial purposes, using over 15% of global supply, and this is rising, the consulting firm said in a report, noting huge quantities are needed to increase pressure at oil fields, in technologies like hydraulic fracturing and to upgrade coal quality.
Growing water needs will pit energy companies against other users, and increase production costs significantly, it said.
Water is already a major cost factor for companies involved in shale developments in the U.S., including Antero Resources Inc., AR +3.57% an energy company backed by New York private-equity firms, which in August said it planned to spend more than half a billion dollars building an 80-mile pipeline from the Ohio River to fracking sites in West Virginia and Ohio.
More than half of shale- and tight-gas areas in the U.S. and the top-10 other countries by shale reserve volume “are located in medium to extremely high baseline water stress areas where competition is high with other local water users and concerns over water quality exist,” Wood Mackenzie said.
Shale gas is natural gas produced by injecting large quantities of water and chemicals into shale rock formations.
The issue has attracted the attention of the International Energy Agency, which late last year warned that water needs for energy production are likely to grow at twice the rate of energy demand.
“In some regions, water constraints are already affecting the reliability of existing operations, and they will increasingly impose additional costs, the IEA said. “In some cases, they could threaten the viability of projects.”
Wood Mackenzie said that energy companies involved in shale developments “face risks of limited access to new sources of [water] supply, and potential well cost increases of up to 15%, or sometimes substantially more.”
Water scarcity has prevented some of the biggest oil fields in southern Iraq from producing hundreds of thousands of barrels of oil per day, it said, noting also that more than 70% of China’s coal-fired power generation capacity is located in areas of medium to extremely high water stress.
Chinese coal mining and power companies “are likely to face future cost pressures in responding to government aspirations to minimize water use,” Wood Mackenzie’s Tara Schmidt said.
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