May 2023

Water management-

Water markets and net water positivity
Mark Patton / Hydrozonix

Lately, decarbonization seems to get all the ESG attention, but water is one of our planet’s most critical resources. And when it comes to water, the oil and gas industry has the potential to become one of the greatest ESG stories ever. The industry produces water as a byproduct, something most industries can’t say.  

You can even go as far as saying the oil and gas industry produces water as a product with an oil and gas byproduct, with water production being as high as eight times oil and gas output. The problem is our water—produced water—is very saline in most cases and requires treatment and/or desalination before it can become a usable product. Not insurmountable at all.  

Of course, we have some regulatory and technical challenges, but these are being addressed. Instead, I want to look at water economics. 

Water markets have been around for a while, with a lot of attention being paid to Australia’s water markets, which have been credited with eliminating drought in some areas. One of the most famous of these Australian water markets is the Murray-Darling basin. The total value of water entitlements in this basin is more than $250 billion. The establishment of the Murray-Darling basin was credited with reducing drought in that part of Australia.  

Water markets allow people to trade and sell water rights or allocations permanently or temporarily. Essentially, the idea is to share water between water-starved areas and water-plentiful areas. Typically, this has some geographical limitations because of the lack of water infrastructure to move water around. This makes the logistic challenge a limiting factor, which in turn is why there are geographical limitations to water markets. You will find that many of the established water markets trade over a specific region. Water markets are not new and are growing in popularity. The importance here is this allows for water to become a tradable commodity with a specific market price. 

Rule of Capture. One thing we must be aware of, especially here in Texas, is “Rule of Capture.” This allows a landowner to draw as much water as he wants. This can undermine water markets, as you develop a market and a market price. You can essentially have one landowner drain an aquifer to sell that water.  

This is famously illustrated in one of my favorite movies, “There Will Be Blood,” when oilman Daniel Plainview says “… if you have a milkshake and I have a milkshake, and I have a straw and my straw reaches across the room and starts to drink your milkshake: I drink your milkshake! I drink it up!" Although controversial, we must eliminate “Rule of Capture” and develop some limitations by creating allocations or allotments for landowners, so we can build healthy, sustainable water markets. I’m not trying to overstate the problem; we do have Groundwater Districts, which essentially limit “Rule of Capture” but we don’t have Groundwater Districts everywhere, so “Rule of Capture” is still the rule in some areas of Texas. 

Water Midstream. So, I already mentioned the logistics challenge and the geographic limitations, but with water midstreams building larger and larger networks for water distribution, these water markets can be larger and networked. The water midstream becomes part of the growth of these water markets. Logistics become easier, and access to water becomes easier.  

Expanding these markets grows the market and allows water starved areas to benefit from access to a new water resource. More importantly, we can monetize a barrel of water to establish a market for our produced water. Midstreams are also moving the produced water around to recycling centers and disposal wells. Any volume we can redirect from disposal wells will help us reduce seismicity by reducing disposal volumes. The Water Midstream, and water gathering and distribution systems, become the much needed infrastructure we need to help expand the Water Markets and make them more successful. 

Net Water Positivity. This is a new term making its way through the ESG and sustainability industries. The idea is to reduce your consumption of water as much as possible and then replace all the water you do consume back into the hydrologic cycle; this is water-neutral. Water-positive is replacing more than you consume. This can happen by cleaning contaminated water being discharged to drinking water standards or close to drinking water standards.  

Many major Fortune 500 companies have made the pledge of New Water Positivity. Microsoft, Google, Facebook, PepsiCo and even BP have made the Net Water Positive pledge. BP has pledged by 2035 to become Net Water Positive. As an industry with all the excess water we produce, we have the greatest opportunity to become Net Water Positive. Developing water markets helps us monetize this water to offset the cost or possibly create a new revenue stream on our path to Net Water Positive. The Net Water Positive commitment is becoming as popular as the Carbon Zero pledge. 

The future of produced water. Yes, there are regulatory challenges that still must be overcome. The technical challenges have mostly been addressed, but over the next five years, we will see more and more discharges of produced water outside of the oil field. We already have some discharges into agriculture. I still think that groundwater recharge is one of the best options, because it can be scaled and operated year-round and not seasonally like many agricultural applications.  

I see an industry where we eliminate the use of fresh water, while we become a net water producer, not just “Net Water Positive.” The ability and opportunity to create a new source of fresh water makes us one of the most sustainable industries on the planet and one of the greatest “Net Water Positive” success stories. Imagine both an energy company and a water producer. It is rare for an industry to have the potential to make such a great impact on our sustainability story, but it is right in front of us. Water Markets allow us to monetize this water production, Water Midstreams and operator water gathering and distribution systems provide the infrastructure.  

We have all the key components to start this journey; we just need to take the first steps. I can tell you quietly that these first steps are already underway in a variety of different ways by many different groups. I’m excited about our future, but now we need to make it a reality. 

About the Authors
Mark Patton
Mark Patton is president of Hydrozonix and has more than 30 years of experience developing water and waste treatment systems for the oil and gas industry. This includes design, permitting and operation of commercial and private treatment systems, both nationally and internationally. He has seven produced water patents and two patents pending. He earned his B.S. in chemical engineering from the University of Southern California (USC) in 1985.
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