A $9 Billion Industry, Overnight

05/21/2012 9:45 am EST


Nick Hodge

Founder and President, Outsider Club

The Gold Rush made millionaires out of more general store owners selling picks and shovels than it did miners…and so it will be in the new Gas Rush in the US, observes Nick Hodge in The Energy Report.

We now know that hydraulic fracturing, or "fracking," is a powerhouse energy technology.

The United States is producing more natural gas than it has in years. Last year at this time, there were 1.736 trillion cubic feet (tcf) of gas in storage. Right now, there are over 2.576. The EIA says we’ll have 4.096 trillion cubic feet in storage by October, which is pretty close to maximum capacity of 4.103 tcf.

Fracking is growing so fast, we’re drilling a record amount of wells each year. Last year saw a record 16,000 fracked wells. The estimate for this year is 19,000 new wells. The Chinese and Europeans have spent billions upon billions in joint ventures and acquisitions to learn how to frack from us.

Because of the abundant production, natural gas prices are now the lowest they’ve been in a decade. And that’s created some problems for companies that make their profits based on the price of the commodity. Just ask Chesapeake Energy (CHK) shareholders who’ve lost 45% of their value in the past year, as fracking came of age.

But the shale boom has been a boon for other companies involved—especially for those that get paid no matter how low the price of natural gas goes.

Heart of Fracking
Water is at the very heart of fracking. Each fracked well can require as much as 22,000 cubic meters of water. That equates to 140,000 barrels—or 5.88 million gallons.

After they’re used, those 5.88 million gallons turn into a chemical-laced brine that’s six times as salty as the sea. It’s not an environmental disaster. It’s not going to kill the industry. But it does have to be addressed.

The 16,000 new wells last year required up to 94 billion gallons of water. The 19,000 new wells this year will require up to 111 billion gallons of water. All of it needs to be treated.

Water Picks & Shovels
Brent Giles, lead author of a new Lux Research report on the fracking water market, said last week: Fracking represents a significant water treatment challenge—hydrocarbons, heavy metals, scalants, microbes, and salts in produced and flowback water from shale gas wells represent a water treatment challenge on par with the most difficult industrial wastewaters.

The report notes those challenges will create a $9 billion industry in the next eight years. And companies are already popping up to take advantage.

This is the gold rush for gas. And just as with the gold rush, it’s going to be the providers of picks and shovels who grow richest, not the prospectors. Clean water is the picks and shovels for the fracking industry.

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