Energy producing giants at risk from increasing water scarcity

Water risks are on the rise for three global energy production hotspots - shale gas in the US, coal production and coal-fired power in China, and crude oil in the Middle East.

This is according to a new study into water risks among the world’s top energy producing regions, published by energy & consulting firm Wood Mackenzie, and supported by data and analysis from WRI’s Aqueduct Water Risk Atlas.

It found that in the US, more than 50% of reserves of shale and tight gas are located in areas of medium to extremely high baseline water stress. Water users in these areas already face high levels of competition for the same supplies.

However these concerns extend beyond the US. In the 10 countries with the largest shale and tight gas reserves, 60% of the reserves are located in in areas facing medium to extremely high baseline water stress.

Energy companies operating in these high-demand and limited-supply areas will likely see pollution and competition-related stress increase in the coming years.

Meanwhile there is limited water the vast coal reserves in China. Chinese coal mining and coal-fired power plants already operate under significant water stress, and could face increasing water risks as energy production moves into the water-stressed northern and western provinces.

In 2012, nearly 70% of China’s coal-fired power generation capacity and the vast majority of the country’s coal mines are already located in areas facing medium to extremely high baseline water stress.

Furthermore, more than 60% of China’s planned coal-fired power plants are slated for development in the six northern provinces that only account for only 5% of China’s total water resources.

Consequently, coal companies will likely face increasing regulatory
uncertainty as the government updates its laws to protect at-risk supplies. Operators concerned about access to permits and potential plant closures need to prioritise water in their corporate risk mitigation strategies.

Oil production in the Middle East also faces a variety of water risks, as the region is one of the world’s most arid. Nearly 93% of the Middle East’s onshore oil reserves are exposed to medium to extremely high overall water quantity risk.

In addition to these supply concerns, energy companies in the Middle East face two primary water risks. First, inadequate desalination or other water infrastructure can disrupt ongoing projects, delaying oil drilling, production, and processing extraction and production.

Second, domestic desalination consumes oil resources that would have been exported to customers around the world. In Saudi Arabia, for example, oil is sold to power and desalination plants at around $4 a barrel, but can be exported at around $100 a barrel.

Maxine Perella

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie