By Reka Sumangali, research associate, Lux Research Inc.
Although one may think that pure crude oil and gas flows from wells, in fact, the exact opposite is true. Within the layers of oil and gas bearing sedimentary rock formations are pockets of water that are brought to the surface when the oil and gas is extracted, called produced water.
Globally nearly 233 billion barrels (37 billion cubic meters) of produced water is brought to the surface each year. Oil and gas companies need to manage produced water, and on top of the large volumes there is also a great deal of variety in the composition of this water from site to site, state to state, and country to country. Manangement of produced water is critical to the profitability of the oil and gas industry, and a key focus of technology development. This wastewater stream contains a host of contaminants from oil and grease to chemicals, microorganisms, and radioactive elements, so simple reinjection or dumping is costly or prohibited. As such, a multitude of companies are clammering to insert new technologies to tackle the associated treatment issues.
In a recent Lux Research study entitled “Water Technology Unlocks Future Oil and Gas Reserves” we spoke with both technology providers and oil and gas companies and found that while the management of produced water is a priority there is a mismatch between the capabilities touted by the technology providers and the implementation of these solutions by the oil and gas companies. Our study ranks technology providers based on 15 factors and places the providers on four application grids: 1) conventional oil and gas, 2) unconventional oil, 3) unconventional gas, and 4) conventional offshore extractions – highlighting successful technologies and companies in these situations.
Overall, there are several technology trends we noticed irrespective of the application. For oil E&P, nearly all companies we spoke with on both sides of the issue noted that removing dissolved and dispersed hydrocarbons was the primary concern and the main focus of the treatment train.
Several technologies are used to remove this contaminant – hydrocyclones, plate coalescers, and adsorbants/absorbants – eliminating different sized oil droplets. In natural gas extraction volatile organic compounds (VOCs) and salts came up as the major contaminants to deal with, where filtration and separation technologies and ion exchange rose to the top. Technology providers noted they focus their target performance metrics based on regulation – stating that eventually the oil and gas companies will need to get to the level mandated by environmental protection agencies. With new technologies pushing the boundaries of what is possible in water treatment, regulators will look to the innovative startups to set metrics that bigger players will need to meet – by using the innovators’ systems.
Like any consumer, oil and gas companies are looking for reliability and brand name – even when adopting new technologies to treat produced water. Our report focused primarily on start-up companies operating in the space, but there are also large scale companies with some experience as well: Veolia’s MPPE system that BP uses, or Siemens’ oil/water treatment technologies which covers the entire treatment train. Other giants use partnerships to access emerging technologies: Filterboxx is partnering with GE to provide packaged treatment solution in the Alberta oil sands in Canada, for example. In another partnership that provides a more complete treatment train, Gradek removes hydrocarbons (using its polymeric bead technology), then Veolia removes any other dissolved minerals and salts and suspends solids using flocculants.
While oil and gas companies want to drive the development of technology, most do not want to buy it – as in the water space in general, they prefer to buy services from a chosen provider. Gradek Energy’s business model capitalizes on this treating its E&P clients’ produced water for free, but earns its revenue by selling the collected oil back to the client. Similarly, Bioteq Environmental Technologies’ sulphate technologies recover metals from wastewater streams, which the company then sells. While this model of selling back the useful recovered contaminants is a viable model to give smaller companies visibility and a chance to prove the technology, it does expose the company to commodity pricing risk. As they are forced into ever-more extreme oilfields and unconventional reserves by petropolitical realities, E&P companies will look to GE’s successful focus on service contracts and capital finance a decade ago as a model for future profits.
What we learned in our study is that there is no silver bullet to address the variations in produced water. The major challenge with treating produced water is that one contaminant in the water can disrupt the effective treatment for another contaminant. Furthermore, the concentrations of all these contaminants vary as they come out of the ground, where even an effective technology cannot cope with the changing dynamics. Because of this, treating produced water is something that no single technology can accomplish on its own. Also, since regulatory drivers tend to focus on single contaminants they are presently insufficient to push treatment in all directions creating a cure-all technology. Moreover, technology development is also spurred by oil and gas companies that promote and fund technologies based on their specific needs further fracturing any potential silver bullet.
Beyond the issues of water treatment and technology, oil and gas reserves remove the power from countries rich in traditional fuels. The development of produced water treatment technologies can unleash new sources of fuel around the world. For example, areas across Europe have unconventional oil and gas reserves untapped today, while they relying on fuel piped in from Russia. If Estonia and France were able to economically extract their oil shale reserves and manage the associated produced water, Russia’s regular restrictions on gas shipments would be less of a problem. In the U.S., shale gas may quench the country’s thirst for fuel and lessen its dependence on the oil rich Middle East, while providing new rural jobs in E&P. As the extraction of unconventional fuels and the associated environmental concerns find their way the forefront, water technologies will be key to the ensuing geopolitical shifts.
Lux Research provides strategic advice and on-going intelligence for emerging technologies in finance and government areas.
