Worsening drought in the Permian Basin may spell trouble for shale producers looking to keep costs down.
This month’s chart was created with data taken from the US Drought Monitor, a partnership between the US Department of Agriculture, the National Oceanic and Atmospheric Administration – which is the University of Nebraska-Lincoln’s National Drought Mitigation Center. The chart compares drought data for Texas and New Mexico states published this week with data published almost exactly one year ago.
The two maps show the region in two starkly different situations. In 2019, when US production was ramping up to its largest total output ever, the Permian Basin was experiencing mainly abnormal dryness and moderate drought, but now the majority of the region is characterized by severe to extreme drought. This map, along with World Resource Institute’s baseline water stress map, makes it easy to see why the buzz around beneficial reuse of produced water has grown louder over the past year, capturing the attention of regulators, industry and academia.
nd though the oil & gas industry is not the largest user of water supplies in the local economies of these two states, water is mission critical to sustaining and growing production, and increased water scarcity will impact shale producers’ bottom lines through rising water prices. This should remain a key consideration for the industry, especially as new drilling picks back up and the inventory of drilled but uncompleted (DUC) wells falls as the industry starts to recover from this year’s calamitous oil price crash.
Shale’s water needs may have dried up with activity over the past few months, but data from the US Energy Information Administration and Baker Hughes demonstrate that those needs are gradually starting to come back. The Permian rig count drop seems to have bottomed out, hovering at around 120-130 since early August, and last month the DUC well count was down 22 from the previous month, for a total of 3,554.