Guest Column | October 5, 2016

Blowback From Flowback: Push For Groundwater Alternatives

By Deonta Smith, IBISWorld Procurement Research Analyst

About 50 percent of the nation’s residents source their fresh water supply from groundwater wells, which have deteriorated throughout the U.S. over the past decade. For shallow wells, severe drought conditions have gradually depleted groundwater levels. However, for medium and deep wells, water levels have plummeted much more as a result of increased hydraulic fracturing. As the rate of usage of medium and deep wells has increased, the recharge potential has decreased, and a number of them have dried up. Likewise, a 2015 U.S. EPA study found that industrial firms engaged in hydraulic fracturing have also contributed to the erosion of groundwater quality, as wastewater discharge is polluting groundwater soil with chemicals and metals.

As state governments and local municipalities have had to increase spending on groundwater well drilling services to maintain a sufficient amount of drinking water, depleted groundwater wells and rising incidences of groundwater contamination have become a costly occurrence. In fact, IBISWorld estimates the average price of water well drilling services has increased at an estimated annualized rate of 5.8 percent to roughly $83,952 per well during the past three years, due in part to fracking. Fracking has placed additional strain on already drought-depleted underground water reserves while increasing the demand for water well drilling services.

Rising Use Of Groundwater Among Industrial Firms  

Thousands of domestic wells are fractured and drilled every year, in line with rising global oil and natural gas output. In the past three years alone, domestic oil and gas production levels have increased at an annualized rate of 4.6 percent. Because of rising domestic oil and gas production, the quality and quantity of groundwater reserves have deteriorated. According to the EPA, the hydraulic fracturing water cycle includes five main activities: water acquisition, chemical mixing, well injection, flowback and produced water, and, lastly, wastewater treatment and disposal. Among these, water acquisition and the process of flowback have had the most devastating impact on groundwater wells.

In regards to water acquisition, water accounts for about 90 percent of the fluid volume injected into an oil or natural gas well; it is therefore a critical component in hydraulic fracturing. This process, along with an overall increase in fracking activities, has created competition for water resources among industrial firms, farmers, consumers, and other users. As such, there has been an increase in groundwater well drilling and extraction during times of low water availability, which has depleted many underground water reserves.

Meanwhile, the flowback process has harmed the quality of groundwater wells. An unfortunate side effect of the process is a number of harmful contaminants that are leaked into groundwater wells, which are therefore likely to impact local residences. According to the EPA, about 9.4 million people live within one mile of a hydraulically fractured well, and about 6,800 sources of public water systems are located within one mile. To mitigate the impact of lower groundwater levels, state governments are enacting water conservation and recycling programs. However, these investments have so far failed to offset the effect of lower quantity and quality associated with the local groundwater well source. Consequently, as the need for fresh groundwater increases for public drinking supplies and irrigation firms, greater investments in water well drilling have been the prevailing response. Nevertheless, the unintended result is higher water well drilling prices.

Investments In Alternative Solutions

While the vast majority of industrial firms use fresh groundwater in their operations, some have opted for substitute options, including the use of surface water or recycling fracturing wastewater. Because groundwater well drilling prices have increased and the EPA has stepped up compliancy requirements, industrial firms have incentives to use alternatives to sourcing groundwater. This trend has opened up more opportunities for wastewater treatment service suppliers.

Wastewater treatment firms traditionally provide EPA-compliant disposal solutions for industrial firms (e.g., manufacturers, construction firms, and mining firms). However, a number of wastewater treatment firms within this market have invested in on-site wastewater recycling services. This practice has allowed industrial firms engaged in hydraulic fracturing to use a closed-loop water cycle solution. Specifically, wastewater treatment firms are able to remove hydrocarbons, suspended soils, and scale-forming solids from wastewater and deliver the solution for reuse in hydraulic fracturing activities. IBISWorld expects strengthened demand for these processes to push demand for wastewater upward, prompting a 2.0 percent annualized increased in the price of wastewater treatment services over the next three years. Fortunately for municipalities and other groundwater users, the change in wastewater treatment price growth is expected to be slower than the cost to acquire fresh groundwater.

Slow Recovery Process

While a shift in water sourcing preferences among industrial firms from new groundwater wells to wastewater treatment will satisfy environmental activists, local residences, and municipalities, it will take some time before the groundwater wells will be able to fully recharge. In fact, because full adaptation is expected to be a slow process, IBISWorld expects groundwater well drought conditions to become even more severe in the short term. In the more immediate future, low precipitation levels will continue to harm the quantity and quality of groundwater wells. In effect, there will be an even greater investment made in the drilling of new groundwater wells, prompting water well drilling service providers to further raise their prices in the next three years.