by Mark Patton, President of Hydrozonix

 

LEGISLATION, HOT AIR & JOINING THE FIGHT
July/August 2019

For most of us, legislation and “hot air” can be closely related, but this column will look at how these topics relate to produced water.

Every industry has a transition point where everything changes. For retail marketing it was the concept of online purchasing; the growth of eBay and then Amazon has completely changed the retail marketplace.

Forty years ago, legislation changed the environmental and waste industries. The Resource Conservation and Recovery Act (RCRA) set new rules defining what was hazardous and what wasn’t. This changed the industry, allowing companies like Waste Management to emerge and acquire smaller, less prepared firms.

Regulatory Reality
The reality is that all emerging industries are confronted with an everchanging regulatory climate. Until now, very little has changed on the regulatory front for produced water. Some changes were made to encourage recycling, but nothing major has passed, yet.

Well, I’m here to say change is at our doorstep. Changes in disposal well permitting in Texas are already in place because of seismicity. The full effect on disposal well permitting has not been felt, but there will be more.

New Mexico just enacted the “Produced Water Act” (House Bill 546) which allows for ownership of produced water to be transferred from party to party. This regulation will encourage larger handling and recycling facilities at a scale that will lower costs for customers.

Such revisions will give rise to a water midstream segment and allow for large-scale disposal networks to become large scale recycling networks, driving down cost and encouraging competition.

New Mexico’s produced water act did more than clarify ownership of produced water. It also allows operators to void freshwater contracts if produced water is available for recycling. This could be a big blow to freshwater suppliers in New Mexico. Again, regulations matter and it’s time to pay attention.

Just like RCRA re-defined the environmental industry in the 1980s, new legislation will define the produced water industry in the coming decade.

The Environmental Protection Agency just released its report on produced water that will keep the spotlight on the industry. It’s foolish to believe, given the current regulatory climate and ongoing concerns with seismicity, there won’t be more legislation aimed at produced water. Are you ready? It’s time to pay attention because these changes will define the direction of our industry. Some new services may emerge; others may become obsolete.

In the Driver’s Seat
Until now, the produced water industry has been molded by demand. In the future, legislation will drive the direction of the industry. As water midstream companies get bigger, they will determine, with input from the majors, the next round of legislation. They will be the major stakeholders shaping the industry. Is your strategy consistent with the coming changes?

I anticipate that water midstream companies will emerge as the new Waste Management of the produced water industry as they acquire and roll up disposal wells while transitioning into recycling. Eventually, there will come a point where midstreams have grown to a scale that no operator can match. By then, large operators will outsource their produced water management to the midstreams. It is exciting to be part of a growing industry as it begins to realize its potential. Water companies must pay attention or key services may become obsolete.

So what about hot air? No discussion of legislation can take place without mentioning hot air.

In this case, I am not referring to the kind of hot air that comes from empty exaggerations. This time it is flare gas that’s behind the hot air.

Rystad Energy, a Norwegian oil and gas consulting firm, reported record levels of gas flaring in the Permian. This comes as takeaway pricing for field gas is trading at negative values. In other words, operators must pay someone to take their natural gas.

To be sure, negative value for gas takeaway is driving the increase in flaring. As a result, there is new talk of reinstating some of the more onerous emissions controls under Quad O(a) that the Obama administration was about to impose before the Trump administration put them on hold.

Waste or Resource?
I noticed the issue of flaring was back for discussion. I understand the need for flaring, but it always feels like a waste of a valuable resource. The idea of using flare gas to evaporate produced water is not a new one, but one I believe should be exploited, especially while gas takeaway values are in the negative.

In a case of good timing, I’m pleased to announce that Hydrozonix was awarded a patent for our produced water evaporator called HydroFlare. To be sure there are others, but with all the attention on gas flaring out there now, alternative uses for valuable resources must be applied. So, there is plenty of hot air from flaring and plenty of produced water that needs to go away. Sounds like something worth exploring, doesn’t it?

Burning flare gas to evaporate water is about using an available resource to fill a need. However, it was not until flare gas limits were being imposed that water managers began looking at flare gas as an evaporation option. Industry response to pressure that flare gas be managed, whether from the market or from regulators, is what will drive change.

As the industry changes, new services will emerge while some will falter. Water operators must pay attention if they want to be on the emerging side and not the faltering side. It’s high time for the water industry to get involved.

Industry trade groups track and lobby for regulatory changes that help the industry grow and prosper and against those that do not. Every shale play and conventional oil and gas region has one or more trade associations that work for the industry. These groups track produced water legislation and, with input from their members, file comments and persuasive arguments for or against.

This industry must be proactive and get involved in crafting the legislation that will shape our industry. Safe to say, there will be legislation and it will bring change, risk and opportunity for our businesses. And that’s not a lot of hot air.

 

 

Authored by Mark Pattonspwm markpatton

Mark Patton is president of Hydrozonix. He has more than 25 years’ experience in the development, design, implementation and operation of treatment technologies. Mr. Patton’s oil and gas background includes treatment systems for waters, wastewaters, drilling muds, tank bottoms and process residuals. He holds one produced-water patent with two additional patents pending.

Mr. Patton earned his B.S. in chemical engineering from the University of Southern California in 1985.