One of the most important issues for oil producers in the unconventional energy market is future water management and disposal certainty. With news of earthquakes potentially caused by deep-well injection disposal, the liability and expense of trucking water off-site for disposal, and public distrust for the fracking market generally, producers need a sustainable, long-term solution for managing their water and social license to operate while maximizing profitability.
One such solution, especially advantageous when taking into account disposal costs over the long term, is to build a dedicated water treatment facility. Whether owned by a single producer or set up as a merchant facility, an on-site plant not only addresses the long-term view of water certainty but also allows for the recycling and reuse of materials. For example, there is opportunity to recover sodium chloride and calcium chloride for reuse and provide an abundance of high-purity water that can be sold back into industry.
Produced water solution for Chevron
One of Veolia's first and most successful produced water management projects has been consistently treating produced water for surface discharge in water-stressed California for Chevron since 2008.
Chevron's San Ardo oil field in Southern California recovers more than 10,000 barrels of heavy oil each day. The oil extraction process generates large volumes of produced water that require treatment and management, typically disposed of by deep-well injection. Chevron engaged Veolia's water treatment technology, engineering and operations experts to provide a new solution for sustainably treating the produced water -- at the rate of 150,000 barrels of produced water daily -- and to oversee the facility's operations and maintenance requirements. This would allow Chevron to minimize its water impact while maximizing efficiency and significantly expanding production.
To achieve this, Veolia engineered, procured and now operates the world's first produced water facility to use its proprietary OPUS® (Optimized Pretreatment and Unique Separation) technology, a multiple-treatment process that removes contaminants sufficiently to meet the established requirements for discharge. In this case, the treated water is used in two ways: It's reused for steam generation, and then released into aquifer recharge basins that replenish local water resources and increase available oil for recovery.
By developing a sustainable solution that allows up to 50,000 barrels per day of produced water for surface discharge and another 75,000 barrels per day for steam generation, Veolia is helping Chevron minimize its environmental impact on water-stressed California by returning clean water to the aquifer recharge basins. And by avoiding deep-well injection, Chevron has a long-term solution for managing produced water that limits its regulatory risk and supports expanded production activities.
Another groundbreaking project
Another opportunity for Veolia to apply new technology and innovation to produced water management came in 2015, when Antero Resources awarded Veolia contracts to design, build and operate a state-of-the-art, 60,000-barrel-per-day water treatment facility in Doddridge County, West Virginia, to manage the produced water from its shale gas exploration operations.
The $275 million complex enables Antero to treat and reuse flowback and produced water rather than disposing it into injection wells. The new facility will be the first system of its kind for treating produced water and creating high-quality reuse water for Marcellus and Utica shale activities. Recycling the produced water from shale oil and gas production will enable Antero to realize substantial savings, as well as reduce risk, cost and environmental impact associated with long-distance hauling of water for deep-well injection. The facility's location, central to all of Antero's operations throughout the region, means the company will be able to reduce the road mileage traveled by its tanker trucks by about 10 million miles annually.
Antero owns the treatment facility, which was built by Veolia Water Technologies. Veolia North America's Industrial Business is operating the systems under a 10-year agreement that includes a performance guarantee, including system availability, "full-risk" maintenance, and the capability to handle a wide range of flowback and produced water characteristics, while achieving West Virginia's surface water discharge standards.
A good fit for Antero
So, what prompted Antero to consider building a permanent water treatment facility? When Antero began drilling activities in the Marcellus region, it incurred significant costs to dispose of its produced water by deep-well injection. The company is hauling the produced water from West Virginia to Ohio for deep-well injection -- requiring up to 600 trucks a day.
Outside of transportation costs, the most important driver for Antero to build this facility was long-term certainty it would be able to dispose of its produced water. Since the deep wells were to be shut down due to government regulations, and knowing it would take two years to build a facility, Antero started looking further ahead than some of the other producers and said, "We need to address this now." With plans to increase production substantially in the Marcellus region, Antero needed a long-term solution to manage the water more efficiently.
Overall, the market drivers for Antero to build the plant can be summed up by these seven points:
- Needing a reliable and economical solution with high certainty for "water disposal"
- Minimizing dependency on deep-well injection and associated costs
- Reducing truck traffic for disposal and associated carbon emissions
- Reducing frack well completion costs (fresh water and chemistry)
- Minimizing freshwater withdrawal from state waterways (Ohio River)
- Adding the ability to recover resources from produced water (freshwater, salts)
- Requiring an environmentally sound and sustainable solution
Technology and operations set Veolia apart
Once Antero decided to build a permanent wastewater treatment plant, it approached Veolia for a technology solution to reliably treat its produced water. The solution was Veolia's CoLD⢠crystallization process, designed to treat produced water for surface discharge. "By using this process, we anticipate delivering approximately 50-60 percent savings compared to the cost for disposal of produced water," said Lnsp "Naggs" Nagghappan, Veolia's vice president of business development for the Upstream O&G market. "That was a key driver for the whole project."
For the Marcellus formation, thermal technology is required to treat the water. Produced water contains very high levels of total dissolved solids (TDS). While there are several small operations in the Marcellus region that can treat produced water for solids and iron, they can't treat the water to a point where they can reliably get rid of the salt so that you can have surface discharge to a creek or a river. In order to discharge the water safely and compliantly to not affect drinking water, it's necessary to use evaporation and crystallization. Veolia's CoLD technology does just that.
"Normally, evaporation and crystallization occur by boiling the water to 212 degrees Fahrenheit," explained Nagghappan. "With Veolia's CoLD technology, you only have to heat the water to 150 degrees Fahrenheit. Veolia's process helps to reduce energy requirements and is unique and more cost-competitive than other market options."
John Brinker, vice president of major project development with Veolia, explained how CoLD is different from standard practices. "Produced water has significant calcium hardness in it," he said. "Historically, the treatment approach would have been to completely soften the crystallizer feed. That means you have to precipitate the calcium and magnesium using lime and soda ash. But because it is so concentrated, it's a lot of chemicals on the front-end, and then it's a lot of sludge on the back-end. That results in a large amount of expense, which Veolia's process helps to mitigate.
"What our CoLD process does is it allows us to keep the calcium in the feed to the thermal end. We operate the tail end of the thermal system at a very low pressure, allowing the brine to boil at a lower temperature to produce a calcium-chloride dehydrate crystal. That's where the CoLD acronym comes in. CoLD means cold crystallizers operate at low pressure, low temperature."
Beyond the technology, Veolia's operational approach is an important differentiator, too. Mark Wagner, Veolia's senior vice president of operations, explained, "From an operational perspective, where Veolia does the best for the client and for ourselves is under a long-term contract operating and maintaining a technology-based solution, like what we're doing for Antero in West Virginia. It allows our operations team and our technologies team to combine resources and not only work through any challenges that we may come to during commissioning and start-up but also to use the same sites as incubators for improving those technologies as we go through long-term operations."
Nagghappan agreed Veolia brings something different to the market. "There are essentially two portions to a water facility project like this. There's the design-build (DB) portion, which involves the technology solution, and there's a separate operations and maintenance (O&M) component. We are unique in providing design-build (construction) because Veolia will do it for a lump-sum fee that not many other water companies will do. On the operating side, there are a number of companies that can supply labor to operate the plants, but what sets Veolia apart is our ability to provide full risk maintenance and an availability guarantee. That is very unique to us, and it's based on our unmatched operations experience and willingness to share in the risk with our customers."
"We work as partners with our customers on these major DB-O projects. The customer lays out their expectations and relies on Veolia and its long-term performance guarantee and full risk maintenance program to help drive all the right choices from the specification of the design-build," said Wagner. "Veolia's role is much greater than what you would just have in a company building a plant for somebody."
This includes running several pilots, generating byproducts for testing, validating the design, and confirming chemicals, consumption, sludge disposal and sludge volumes. All of that is piloted by Veolia, and then incorporated into the design.
"What customers can buy from Veolia is a pretty unique product, because O&M providers don't normally take risks on maintenance, but we do," said Wagner.
Brinker agreed. "It's a different business model," he said. "It's because we've got the long-term experience, and we're involved at the front-end to be able to specify what we need, what we know works and what we know doesn't work based on running these types of facilities for over 20 years."
Market conditions
Nagghappan thinks there's a market for this service. "It's a service-driven market, and we have the right offerings," he said. "For us, technology opens the door and our commercial offering minimizes the risks. It doesn't work without either one of them. We need both these packages together to have a success story with our customers. That's unique to Veolia, which I don't think many companies can do."
The upstream market in the U.S. is anywhere from a $10 billion-$15 billion market over a 10-year prediction on water treatment, and Veolia is ready to grow in this area. "In the upstream market, there are only two types of treatment options: reuse or discharge. Water is either treated to reuse in application or treated for discharge," noted Nagghappan. "Veolia's real strength is on the discharge side."
Wagner sees a change in the market for deep-well injection, too. "In many parts of the country, underground or deep-well injection is becoming less and less acceptable. This means that treatment will be required to take the water quality level to that of bottled water," said Wagner. "And this will require much more sophisticated technology. Veolia believes we are uniquely positioned to be able to meet this need. And when you factor in Veolia's ability to offer performance guarantees and maintenance risk programs, our value proposition for our customers sets us apart."
Commercial options for wastewater treatment facilities
There are three commercial models Veolia works within: Design-Build and separate Operate (DB-O), Design-Build-Own-Operate (DBOO) and Merchant. Each option minimizes the risk for the customer. The difference is in who owns the facility and what type of commitment they are providing.
For example, in the DB-O model, the customer owns the facility, as is the case with the Antero plant. Antero owns the facility, which means it provides the capital to buy the plant. In the DBOO model, Veolia owns the facility but expects the customer to sign a long-term contract. In this instance, the customer provides volume guarantees to cover the fixed costs, including capital recovery.
A third option is the Merchant facility. In the merchant model, there's no capital investment from the customer. Veolia builds a plant and provides the treatment or processing capacity. It's a lower-risk application for the customer.
Today, Veolia applies its merchant facility model in two primary ways for industry: KOH manufacturing services and sulfuric acid regeneration. In the instance of KOH, Veolia accepts potassium fluoride (KF) generated by refiners running hydrofluoric acid (HF) alkylation units at two merchant facilities in the Gulf Coast region and uses it as a feedstock to manufacture potassium hydroxide (KOH). The KOH is returned to the refinery customer for reuse. A similar model applies to sulfuric acid regeneration. Spent acid from sulfuric acid alkylation units is accepted at Veolia's Burnside plant in Darrow, Louisiana, where it is regenerated into fresh acid and returned to refineries for reuse.
Now, Veolia believes there is opportunity to take its merchant plant concept into the produced water market. "Applying the merchant concept to produced water treatment is a very exciting proposition for Veolia," said Nagghappan. "We believe it's a solution that is a good fit for producers and the market."
In this model, Veolia could be treating water from any number of producers at the same time and there are economies of scale. Instead of building five plants to serve five operators, one is built in a centralized location that works for all of them. "That's the kind of concept the market is demanding," said Nagghappan. "Operators don't want to give a long-term commitment. They don't want to invest a large chunk of capital -- half a billion dollars or something -- to build a plant, and they want cost efficiency on dollars per barrel. That's why we're looking at that option."
"To do this correctly, we have to deeply understand the customer's competitive alternative -- which we believe we do," said Wagner. "It's not that we're just building a plant, hoping that the customers are going to come. We understand we have to be priced to the market and provide a solution that meets their operational, regulatory and social requirements more effectively than their other options."
Veolia's goal is to design, build and operate highly sophisticated merchant water treatment plants in a unique service offering, leveraging both its technology and O&M expertise. According to Wagner, "Our merchant model is highly strategic for the upstream O&G sector, and it's a concept we know operators are interested in. We're not approaching this opportunistically. It's well thought out in terms of where the market is and what the competitive alternatives are. We know what the demands of operators are and have good intelligence on what those demands will likely be in the future. We know if we design this correctly, they will likely use it because, just like everyone else, they're looking for the most economical and reliable solution to meet federal and state regulations."
Veolia has found the merchant facility arrangement works well in certain geographic locations such as Oklahoma, where there is constant attention and discussion around fracking's connection to seismic activity in the region. The Oklahoma Corporation Commission (OCC) just published reports that fracking itself does not cause earthquakes but injection of produced water into deep wells may. As a result, the OCC has mandated oil companies reduce injection by 40 percent. Oklahoma is the No. 1 oil-producing state in the entire country, followed by Texas and California. In these three states, there is huge demand for merchant facilities.
The commodity price of oil also drives these merchant facilities. When the price of oil is in the $40-$50 range, producers struggle to find capital available for investment in water projects, because the returns are much lower compared to what they'll make in drilling and production. In that arena, when the commodity price of crude oil is $40-$50, it makes sense for producers not to invest in water projects, but rather go to a merchant-type plan.
The future for water management
In the merchant concept, there are three outlets for the water once it's treated. One is to reuse the water in fracking operations. Another option is to discharge the water, which requires a regulatory permit, or potentially use it for non-potable purposes like irrigation and agricultural use.
A potential third option may involve assisting drought-ridden regions like Oklahoma, West Texas and certain parts of California. This treated water could be sold to industries as a source water, to refineries for steam generation or cooling tower makeup, or to the food and beverage industries for process water. "We've seen a lot of interest in California and West Texas for this water," Nagghappan explained.
In the future, producers will continue to face many factors affecting water certainty and disposal options, whether regulatory, environmental or financial. Ultimately, technology and operational excellence will help overcome these obstacles and provide reliable, environmentally sound and financially appealing solutions for the oil and gas industry.
For more information, visit www. veolianorthamerica.com or call (713) 672-8004.
