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Thematic investing

Making every drop count

September 2017

The Advisory Board

Why the water conservation industry could receive a shot in the arm from US shale.

Water conservation and treatment is big business. A growing world population and climate change have made it so. But the industry could be bigger still if an increasingly thirsty corner of corporate America embraces more sustainable production methods.

The firms in question are the US's shale oil and gas operators. Their revolutionary hydraulic fracturing technology – a process that involves firing water at high pressure into underground rock to dislodge trapped fossil fuels  – uses vast amounts of the clear, wet stuff.

Nationwide, fracking accounts for just 1 per cent total water consumption, but the proportions are far higher within the individual counties and states where shale wells are situated.1 On average, just one of the shale wells operating in Pennsylvania consumes almost 5.6 million gallons water over its lifetime, enough to fill seven Olympic-sized swimming pools.2

Given there are some 300,000 fracking sites across the US, it’s easy to see why the shale industry has drawn the ire of conservationists, biologists, municipal authorities and politicians.3

Among the concerns is that fracking wastewater is not recycled often enough. While wells in Pennsylvania treat most of the wastewater they produce, others, like those in West Virginia, recycle less than 8 per cent.3

In fact, over the years 2004 to 2011, fracking has been responsible for a six-fold increase in the amount of wastewater the US produces.

In the majority of cases, untreated flowback, a liquid thick with chemical pollutants and other toxins, is disposed of in wells deep underground. That’s unsustainable for many reasons. It places a strain on shale oil states like Texas, where fresh water is less abundant, and also risks contaminating rivers. The practice has also been shown to cause minor earth tremors.

Things needn’t remain this way for long, however.

According to members of the Pictet Water strategy’s Advisory Board (AB), shale companies could cut their use of freshwater by a significant margin. The solution – deploying water treatment and recycling technologies – might be complex, but still within the realms of what’s technically and commercially feasible.

thirsty work: fracking in the us
water use for hydraulic fracturing
Source: Kondash, A, Vengosh, A, 'Water footprint of hydraulic fracturing', Duke University, 2015

Getting the flowback to flow back

Re-cycling water released from fracking is no easy task. Unrecognisable from its original state, the liquid that gushes up from shale wells is a cocktail of poisonous chemicals and radioactive matter – a mix of fracking fluid and the naturally-occurring compounds that leach out from rocks below ground.

Until recently, well operators have been reluctant to treat and re-use flowback, concerned that doing so would both increase operating costs and cut production. But under growing pressure from environmentalists and regulators, shale companies have begun introducing water recycling technologies into their production processes.

Broadly speaking, well operators can deal with wastewater in one of four ways.

The first is primary treatment. This is a catch-all term for techniques such as coagulation and disinfection that remove suspended solids, grease, oil and microbiological contaminants from wastewater, rendering the fluid clean enough for re-use in fracking. This is usually carried out on site. 

Secondary treatment refers to a more complex set of chemical processes. These target the removal of ions, such as barium, calcium, magnesium, and strontium, often using lime. Treatment chemicals are added to wastewater to form particles that settle. The water is then decanted to remove contaminants, making for a cleaner fracking fluid. 

Under growing pressure from environmentalists and regulators, shale companies have begun introducing water-recycling technologies into their production processes .

Tertiary treatment combines primary and secondary treatments with a form of thermal desalination to produce higher quality water for re-use in shale wells. The process removes both suspended and dissolved solids (known as total dissolved solids, or TDS) from the water.

The fourth option is the most complex and costly: recycling water for human use. This can be done in one of two ways. The first is high-temperature thermal distillation, extracting water from flowback by boiling it and re-condensing the steam. Where this is carried out, it is usually done offsite: wastewater is transported by lorry to a treatment plant. The process is costly because it’s energy intensive.

The second, cheaper, method is membrane filtration, through which water is forced through cell-like structures made of plastic composite. The membrane acts like a sieve: water molecules are small enough to pass through but larger ones – such as sodium, chloride and other TDS – are not. The membranes work best most at high pressures. An enhanced version of this process – vacuum multi-effect distillation – combines both distillation and membrane separation. 

Unblocking the system

For all these water treatment options, take-up has been slow so far. Cost is a factor – albeit less of one in recent years. Yet there are two bigger obstacles, AB members explained.

drawing from the well

Water use per US shale site, in millions of gallons per year

water use
Source: Ceres

The first is commercial. The composition of fracking fluids is jealously guarded by well operators, who see it as some kind of ‘secret sauce’ that improves a well’s productivity. For water treatment companies, not knowing what’s in that sauce is problematic as it makes it difficult to recycle fracking flowback effectively.

Techniques that work well for one type of chemical contaminant could be completely useless in the treatment of others. At worst, using wrong method could introduce yet more pollutants into the fluid.

A second stumbling block is geological. During fracking, shale rocks leak toxic compounds into the water. Normally that wouldn’t bother water treatment firms - they already have the technology to remove such contaminants.

The problem is that shale rock-beds differ enormously in their chemical make-up – no two formations are the same. Matching treatment to the flowback then becomes a complex task, one requiring sophisticated technical analysis before recycling can begin.

As one AB member observed: “It is not just about running the water through a mass spectrometer and coming up with an analysis, you have to look for specific contaminants and then determine the best course of action. That’s time consuming.

A boon for the water industry

For all this, the shale industry will face stronger incentives to embrace water preservation in all its forms. The dumping of brackish water is no longer a viable option – either from an economic or a regulatory standpoint. Technical barriers to the adoption of water recycling, meanwhile, can be lowered, especially if well operators become more transparent about their production processes.

This, in time, could give companies operating across the water preservation and recycling industry a shot in the arm. Revenue generated from the treatment and recycling of fracking wastewater in the US is, by some estimates, expected to grow by 30 per cent per year over the next 10 years.4 The lion’s share of that growth will probably flow to firms developing filtration, chemical precipitation and desalination technologies. But a big portion is also destined for businesses in water data analysis and management. “Following the example of other industries, shale oil and gas increasingly sees water as a resource management problem not a waste management problem. That’s a big change,” said one AB member. Water is vital resource. It’s also an investment opportunity.

Water's investment credentials

  • Wastewater recycling and treatment companies are among the investments that feature prominently in Pictet's Water strategy.
  • The strategy also invests in many other areas of the water industry, including sanitation, water security, bio-solids management and flood defence.
  • The portfolio aims to deliver long-term capital growth by investing in both growth and defensive stocks within the water industry.