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Fracking's Thirst for Water: Investors Warned of the Hidden Financial Risks

In dozens of water-scarce counties where fracking is booming, water use is at or approaching more than a billion gallons a year.

Feb 5, 2014
Drilling for natural gas on the Pinedale Anticline in Wyoming

Some of the nation's driest, drought-plagued places have quickly become its busiest hot spots of drilling for shale gas and oil, especially in Texas, Colorado and California.

It's a dust-bowl-sized problem likely to become worse, according to a study released Wednesday by the nonprofit sustainability advocacy group firm Ceres. Fracking, the controversial drilling technique, is consuming billions of gallons of water each year in states where water is increasingly scarce. The report warns that investors need to demand information about how energy companies are managing this problem or risk their investment portfolios being clobbered.

Put simply, Ceres is saying there probably isn't enough fracking water where fracking most wants to happen. And eventually, there will be a price to pay.

The study found that nearly half the wells being hydraulically fractured in the U.S. since 2011, a time of explosive growth in shale energy drilling, were in regions with high or extremely high water stress. More than half were in places suffering drought. Modern-day fracking extracts gas or oil locked a mile or more underground by injecting pressurized water, sand and a brew of chemicals into a long horizontal vein of shale. On average, the Ceres study found, a single gas fracking site consumed 1.9 million gallons of water per year—enough water, based on EPA estimates, to supply the yearly needs of 13 families of four people. A fracking site can produce for as long as four decades, according to industry literature.

In Colorado and California nearly all the fracking is occurring in areas of high or extremely high water stress—96 percent for California's Monterey shale play and 97 percent for Colorado's Niobrara formation north of Denver. Ceres defined "extremely high water stress" as an area where 80 percent of available surface and groundwater is already allocated for municipal, industrial and agricultural uses.

"We worry that groundwater is not stewarded well," said Monika Freyman, the report's author and analyst. "We think it's a material risk from an investor point of view."

Overall, 36 percent of the 39,294 hydraulically fractured wells in Ceres' study, covering the period from 2011 through May 2013, overlaid "regions experiencing groundwater depletion."

"What we see is not very pretty," said Jay Famiglietti, a hydrologist at the University of California, Irvine. Climate change is accentuating extremes in Mother Nature's water cycle, he said. "Wet areas of the world are getting wetter and dry areas of the world are getting drier."

"In those dry regions, we are already relying on groundwater," Famiglietti said, and the rise of hydro-fracking creates new demands that argue for more careful allocation.

Amada Brock, CEO of Water Standard, a Houston-based water treatment firm, said Texas "is Ground Zero in the debate." She said "groundwater levels are depleting rapidly" in areas of intense fracking there. "There's no denying that it has had a significant impact."

Ceres is warning investors that drilling and service companies need to disclose more information about their water supplies. In dozens of dryish counties where fracking is booming, water use is at or approaching more than a billion gallons a year. The thirst for water is so great that one company, Apache, is recycling all its fracking water in the west Texas Permian Basin area. One company in the Marcellus region, Chesapeake, recycles nearly all its fracking water.

How well local regulators manage the drilling industry's demand for water runs the gamut, Freyman said. Some officials are well prepared and adept, often by having good planning and regulations in effect for growth and development. Some are caught off guard. In Pennsylvania's Marcellus region, Freyman noted, state water managers watch demand and on occasion order a halt to hydro-fracking. The industry complies. Aquifers and water bodies replenish. Then work resumes.

In other places, it's the Wild, Wild West for water. In Texas, groundwater regulation is minimal.

The study portends future collisions between the drilling industry and people who need scarce water for homes, farms, businesses and irrigation. But the picture is a complicated mosaic, the report said. And the severity of the problem depends heavily on local conditions and how governments and drillers behave.

Water use by shale drilling and mining generally is a fraction of water use nationwide—a mere one percent or so. The big user generally is agriculture, which consumes more than a third. People account for about an eighth. But fracking becomes a big factor locally when it competes in a dry landscape, because the process tends to foul and remove water from the earth's natural cycle of replenishment.

Ceres is a non-profit investor analysis firm that believes environmentally conscious behavior is good business for investment. It acquired the elaborate and up-to-date data for its study from the World Resources Institute, an environmental data collector, and from FracFocus.org, a website where drillers file information. The engineering firm PacWest assisted Ceres in the study. Much of the underlying data comes from the U.S. Geological Survey.

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