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Water: Oil boom's thirst fuels thriving market


Editor's Note: This is the first part of a two-part series on North Dakota oil and water.

FARGO -- The oil boom's thirst for "fracking" fluids fuels a thriving market for water that has become an industry with yearly sales estimated at between $45 million to $120 million.

Consider that it takes several million gallons of water to drill one well in the Bakken Formation -- and drilling is expected to produce 2,000 to 3,000 new wells a year for the next 15 or 25 years.

That prediction translates into an ongoing demand for water between 20 million and 30 million gallons per day at projected levels.

By comparison, the city of Fargo treats an average of 11 million gallons of water daily, with peak summer demand of 23 million gallons, according to city figures.

The current market price for water in the Oil Patch is around 1.5 cents a gallon, regulators and others familiar with the industry said. Industrial water often is sold by the acre-foot -- one acre-foot equals 325,851 gallons -- at the rate of around $488,775 for 100 acre-feet.

"It doesn't take long to figure out there's lots of money to be made in this," said Rep. Bob Skarphol, R-Tioga, who is calling for more stringent monitoring of water use in the Oil Patch.

Water providers can easily gross "tens of millions" of dollars a year in what Skarphol, who spent 40 years working in the oil business, believes is an industry that grosses more than $100 million a year.

"It's very lucrative," said Bob Shaver, a hydrologist who oversees water permits for the State Water Commission, adding that water service firms can "absolutely" make a million or more dollars a year.

Industrial water sales, unlike oil and gas production, are not taxed, but are subject to permits limiting the quantity withdrawn from groundwater or surface water sources.

A leading private water provider said, however, that water supply depots require significant investments with no assurances of earning a profit.

"I've built a few water depots, and some of them haven't paid," said Mike Ames, owner of Agri-Industries in Williston, which serves irrigators and industrial water users.

The cost of building a water depot has risen in recent years and now is around $500,000, he said, yet water providers typically must build them without signed water contracts in hand.

"You really have no guarantees that anybody's going to take your water," Ames said.

His estimate of the size of the water industry to serve the Oil Patch is around $45 million, the low end of the estimated range that others peg at up to $100 million or $120 million.

Ames' figure is based on the sale last year of 9,300-acre-feet from water depots in western North Dakota, according to state figures.

The state's estimate of the petroleum industry's projected future demand for water, however, is estimated at 22,400-acre-feet per year.

Regardless of the size of the water industry, water is crucial to pumping oil from deep underground in the Bakken Formation, where deposits are trapped within layers of shale stone.

Under high pressure, a mix of water, chemicals and other materials are injected to fracture the shale stone in order to pump the oil to the surface.

Water is the main ingredient of "fracking" fluid, comprising more than 80 percent of the mix.

The amount of water consumed by the petroleum industry -- much of it from groundwater supplies called aquifers -- is growing in response to new drilling techniques to boost well productivity.

The average amount of water used to drill a well once was 2.4 million gallons, but now is more like 3 million or 3.5 million, according to some recent estimates.

Water delivered to the Oil Patch by commercial water depots has risen significantly in recent years.

Deliveries from water depots in western North Dakota grew from 5,700 acre feet in 2010 to 9,300 acre-feet last year, an increase of 63 percent.

In response to that demand, the number of independent water providers, businesses that cater to industrial users, has grown from 45 in 2010 to 100 this year, said Ames, a member of the Independent Water Providers industry group.

Public water projects also are rushing to meet the demand -- a development that has sparked a water battle in one project that will serve northwestern North Dakota.

The $150 million Western Area Water Supply project is under construction and is slated to start delivering Missouri River water by the end of the year.

Public partners include the city of Williston, which is expanding its water treatment plant to provide water to the oil industry, communities and rural water systems.

The project is backed by the state of North Dakota, which is loaning $110 million to the project, but has drawn opposition from the water industry, which considers it competition with the private sector.

During a meeting in March involving the State Water Commission, and earlier during the 2011 legislative session, a group called the Independent Water Providers tried to halt expansion of the Western Area Water Supply initiative.

"They said stop this right now," said Gene Veeder, McKenzie County's economic development director and a member of the Western Area Water Supply Authority board. "That was their argument at the Legislature, too."

The dispute continues, with some proposing mediation as a way to settle the conflict between public and private water suppliers in northwest North Dakota.

"We haven't come to an agreement about what percentage to leave on the table," Veeder said, adding that the Western Area Water Supply project's revenues from water sales are crucial to paying for the system.

"I think they'd like to sell it all," he added, referring to the independent water providers.

Independent water providers are not opposed to the Western Area Water Supply project, Ames said, but question the size of the project. North Dakota's booming oil industry was built with the help of independent water providers, he said.

The project's size has expanded with unprecedented growth in the Oil Patch, including population growth, the project's backers said.

The petroleum industry, communities and rural water systems that will be served by the project all support public water delivery in the Oil Patch, Veeder said.

"The battle is being waged in Bismarck," he said, "not our communities."

Although the project will be primarily financed by sales of water to industry, communities and rural water users also will benefit from the project, backers said.

Robert Harms, a lawyer and lobbyist for the independent water providers, said customers of the project, including rural water systems and several communities or taxpayers would be on the hook financially if it can't repay its loan.

Although the project means competition to private providers, proponents of the Western Area Water Supply project maintain that the burgeoning water industry has plenty of room for suppliers, both public and private.

"You can see why they're fighting us," Wirtz said. "There's millions and millions and millions of dollars being made. We're just trying to get some of it to pay for our water projects."

Meanwhile, the biggest threat to supplying water to the Oil Patch, state officials say, is the halt federal officials imposed two years ago to industrial water access to Lake Sakakawea on the Missouri River.

One inch of water drawn from Lake Sakakawea contains 10 billion gallons of water -- enough to drill 5,000 wells using an average of 2 million gallons of water, according to state calculations.

The reservoir, strategically located in the heart of the Bakken Formation, is by far North Dakota's most significant water source. Piping water from the lake could save thousands of trips by water trucks, state officials have said, sparing roads from punishing loads and improving traffic safety.

The U.S. Army Corps of Engineers imposed a moratorium on new industrial water access to Lake Sakakawea pending the outcome of a study examining a proposed fee for water stored in the reservoir.

State officials, asserting North Dakota's right to Missouri River water, have vowed to go to court if necessary.

In the meantime, state water officials have granted temporary approval to allow farmers with irrigation permits to be converted for industrial use.

Last year, the temporary conversions of irrigation water to industrial use made almost 2,500 acre-feet of water available to oil development.

Water officials also are allowing permits to temporarily pump water from other streams and ponds.

So far, because of wet weather, state water officials have said, surface water remains plentiful in northwest North Dakota. But the permits can be revoked at any time, and meters are required for permits of 15 acre-feet or larger.

Surface and groundwater sources can provide up to almost 27,000 acre-feet of industrial water per year in the Oil Patch. That's more than the estimated future total demand of 22,400 acre-feet.

But almost 13,000 acre-feet, close to 60 percent, comes from temporary sources. And state petroleum regulators estimate that 35,000 more wells are yet to be drilled in the Bakken Formation.