The White Elephant in The Room

March 2, 2020 by

The title of this blog combines two concepts. A white elephant is a possession whose cost to dispose of, is out of proportion to its usefulness. The elephant in the room is a metaphorical idiom for an important topic, problem, or risk that that everyone knows about but no one wants to discuss because it makes at least some of them uncomfortable. With this explanation in place let’s ask a question.

Question: “What produces 1.1 trillion litres of water per year in order to extract a marketable commodity?”

Hint: 5.4 barrels of water are produced for every $50 worth of this marketable commodity.

Answer: Canada’s Petroleum Industry. Some might say this is a water industry with a petroleum by-product.

For over 20 years in this industry I have been aware of water produced in conjunction with oil & gas, of increases in water cut as wells mature, and the significant percentage of operating costs that trucking and disposal represents. However, I didn’t appreciate the magnitude of produced water that the industry contends with… until now.

Produced water is water that is co-produced with petroleum products from a reservoir at significant depth. Produced water is non-potable water, saline, and often contains undesirable trace minerals and heavy metals and as such, is considered to be “wastewater”. Once the oil, gas and condensate have been separated, this wastewater goes through a waste facility and is injected back into the subsurface down a government regulated disposal well. Essentially, the wastewater is being put back into the ground where it came from. I’ll cover wastewater disposal in detail in my next blog.

In fields using waterfloods to Enhance Oil Recovery (EOR) the water produced is recycled and re-injected at high pressure back into the producing reservoir as part of the waterflood program.

Produced water from Steam Assisted Gravity Drainage (SAGD) wells in thermal oil sand operations is primarily comprised of the steam that was injected into the reservoir to mobilize the oil (bitumen). The vast majority of this water is recycled and re-injected (as steam) back into the reservoir. Alberta Government regulations stipulate that all projects must recycle a minimum of 90% of the water used in SAGD extraction. Only non‐potable water can be used to generate steam for SAGD.

Let’s look at the numbers for 2019:

  • 3 billion boe (barrel of oil equivalent) of oil and gas was produced in Canada. Note that I used a gas conversion factor of 25.1 to reflect the price difference between gas ($2/mcf) and oil ($50/bbl). This puts oil and gas on an even playing field and translates into a boe = $50 of marketable commodity. See my previous blog on this topic to understand the merits of this approach.
  • There were slightly over 200,000 producing wells, of which approximately 12,000 produced from the oil sands.
  • 7 billion barrels (= 1.1 trillion litres) of wastewater were produced, transported, treated and safely re-injected into subsurface reservoirs.
  • 431 million barrels (6.4%) of total produced wastewater came from water-source wells and is primarily used to support waterflood activities and fracking. Water-source well production has been growing dramatically over the last 30 years (see chart below).

It is important to separate out oil sands production from other production as the water to oil values are quite different. The average water to oil ratio for all of Western Canada is 5.4. Oil sands production has a lower water to oil ratio of 3, while all other production has a ratio of 7.2. That works out to 7.2 barrels of water produced, handled and disposed of, for every $50 of marketable petroleum commodity.

Because I’m a numbers nerd… the cumulative volume of water produced to date by the petroleum industry in Western Canada is 182 billion barrels. That’s 29 trillion litres, or 11.6 million Olympic size swimming pools. Those swimming pools would cover an area equivalent to 25% of Alberta, or 30 times the area of PEI. The good news is that all of this water is either treated and recycled or is injected back into the deep subsurface where it came from, protecting our surface water and aquifer supplies.

Other waste that the industry contends with is recovered frac fluid (water mixed with various chemistries), workover-related fluids, and drilling mud & cuttings to name a few. Each type of waste has strict controls on when, where, and how, it is disposed of.  Frac fluid adds significant volumes to disposal demand. It is estimated that approximately 36.5 million m3 (= 230 million barrels) of recovered frac fluid was disposed of in 2019. The volume of frac fluid per well has been increasing for years and appears to be levelling off around 8000 m3 per well (although not all 2019 data is available yet).

The white elephant in this post is wastewater, lots of it. The elephant in the room… we are producing an increasing amount of wastewater and we need to get smarter about how we transport, dispose of, and recycle it. In a continued low-commodity-price environment, the profitability challenges for producers are expected to get worse. This is, however, an industry where technology and innovation continue to reduce costs and steward responsible oil & gas production. I applaud our industry for dealing with so much wastewater in an environmentally responsible & cost-effective fashion… and continuing to distinguish themselves as one of the most responsible petroleum-producing countries in the world.

Stay tuned for my next blog where I’ll dive into the details of Waste Disposal.

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Data sources used: IHS Markit’s production data, geoLOGIC’s Well Completion & Frac Database