28 May 2020
Chart of the month
The impacts of the 2020 oil & gas downturn on the US onshore water management sector will be drastic, especially for segments tied to source water supply.
This month’s chart includes data provided by business intelligence firm IHS Markit and shows estimated US onshore produced water volumes by destination in 2019 and 2020 under a base-case scenario. The firm’s analysis considers shelved drilling programs, well shut-ins from April-June and existing production expected to come back online in August-October.
Dwindling global oil demand and plummeting prices since the beginning of the year have spurred producers worldwide to pull back on capital spending for new drilling programs. The US onshore sector is perhaps the hardest hit. Produced water volumes will shrink alongside hydrocarbons output, with significant repercussions for the water management sector.
IHS predicts that US shut-in produced water volumes will exceed 5.3 million bbl/d in Q2 2020, mainly from conventional wells primarily in the Permian and Bakken, as well as in parts of the Eagle Ford. Prior to factoring in the estimated impact of expected shut-ins, IHS had forecasted 2020 total produced water volumes to be up slightly over 2019 levels due to a lag between suspended drilling activities - particularly in areas with higher water cuts, such as the Delaware Basin - and natural production decline rates at individual wells. However, the added consideration of production curtailments has pushed the growth forecast for total onshore US produced water volumes into the negative.
Another consequence of the drop-off in activity is the share of water destined for disposal versus recycling. Interest in recycling was on the rise in 2019, with many operators laying out more expansive reuse targets for the year ahead. With much fewer new completions anticipated in 2020, many operators will be unable to recycle their produced water and will therefore opt for nearby disposal.
According to IHS, we will see higher produced water volumes in H2 2020 compared to the first half of the year, both because of the production anticipated to come back online and because those wells are expected to initially have higher water-to-oil ratios. The firm also expects many stripper and conventional wells to remain plugged even after the market begins to recover.