Commodities
In arid New Mexico, rural towns eye treated oil wastewater as a solution to drought
By Valerie Volcovici
JAL, New Mexico (Reuters) – Flying over the desert landscape of southeastern New Mexico in a four-seat helicopter, Stephen Aldridge could count around a dozen man-made lagoons brimming with toxic wastewater glistening between drill rigs and pumpjacks.
While it is a growing hazardous waste problem from the region’s booming drilling industry, the mayor of the tiny town of Jal – nestled near the border with Texas in the heart of U.S. oil country – viewed the sweeping scene as an opportunity: a source of water in the second-biggest oil producing state suffering from worsening drought.
“Our future is going to depend on the future of that produced water,” he said.
Aldridge is among a growing group of New Mexico politicians who want the state to develop regulations allowing for the millions of gallons of so-called produced water gushing up daily alongside the Permian basin’s prolific oil and gas to be treated and used, instead of discarded, and who are encouraging companies to figure out how to make it happen cheaply, safely and at scale.
In 2022, the oil and gas industry in New Mexico produced enough toxic fracking wastewater to cover 266,000 acres (107,650 hectares) of land a foot (31 cm) deep. While the state’s drillers reuse over 85% of their produced water in new oil and gas operations, the rest is pumped underground.
With injection wells filling up, however, New Mexico has begun restricting deep-underground disposal, which has triggered earthquakes. The state is now expected to export over 3 million barrels of that water per day by the end of 2024 – a strange dynamic in a water-scarce state.
Around 10 wastewater treatment firms in New Mexico are taking up the challenge under a state-supported pilot program that has so far spurred projects to grow crops like hemp and cotton and irrigate rangeland forage grasses.
While completed pilots have shown the technology works, it is currently too expensive for widespread adoption.
The companies and their backers also face a tough political battle. The debate over how this water should be used is one of the most divisive political questions facing New Mexico, with opponents mainly worried about the unintended human health consequences and subsidizing the oil industry’s waste issue.
New Mexico’s Democratic Governor Michelle Lujan Grisham introduced legislation late last year that would have created a strategic water reserve out of treated produced water. The bill was defeated by state lawmakers but will be brought up again in the next legislative session in January.
Neighboring Texas is also dealing with growing problems around wastewater disposal, including an epidemic of exploding orphan wells as subsurface pressure rises, raising worries about a potential crackdown there too. The Permian basin, which straddles Texas and New Mexico, is the top U.S. oilfield.
“It’s getting close to this point of criticality,” said Rob Bruant with energy consultancy B3.
Other states such as Colorado and California already use treated produced water in small amounts for agriculture. But New Mexico’s situation is unique because the volumes are overwhelming and the water itself needs much more intensive treatment because it is unusually briny – three times saltier than the Pacific.
CRYSTAL CLEAR FISH TANKS
Aldridge stands out in dusty New Mexico, with shoulder-length white hair and a bushy beard, often wearing bright West African tunics.
His chopper tour in late-July was part of a site visit to one of the state’s wastewater treatment pilot project run by a company called Aris Water Solutions.
At the mobile trailer field office of the Aris project, Aldridge admired fish tanks on display filled with crystal clear water run through Aris’s treatment technology, and home to around two dozen minnows.
Before it is treated, though, the water is dangerous. Employees on site are required to wear flame retardant clothing and carry portable monitors to detect deadly gases.
The untreated water is trucked in by local drillers and held in two large storage tanks before getting piped through a membrane filter to remove solids, and then distilled.
The process yields clear water, and leaves behind a highly toxic rust-colored mud that is reinjected underground at a registered saltwater disposal site.
The water, Aris says, is free of pollutants or radionuclides, and fit for industrial and agricultural uses. Starting next year, Aris will begin growing non-food crops like cotton as part of a $10 million grant it won this year from the U.S. Department of Energy.
“We look at the concept of desalinating produced water and creating a new water resource for the Permian region in a similar way to how the water industry was able to demonstrate that municipal wastewater could be safely treated and used for many purposes that society could become comfortable with,” said Lisa Henthorne, chief scientist at Aris.
The main problem for Aris and others is cost. A barrel of Aris’ treated water costs over $2 a barrel, many times higher than what industrial or agricultural water users typically pay. Aris says its goal is to bring costs down to $1 – still representing a big bill for users.
Massachusetts-based Zwitter, which recently finalized a separate water treatment pilot project in New Mexico, said treated water may never be cheap, but could become viable if it becomes cheaper than disposal.
“It is unlikely that agriculture or other water users will be able to pay more than cents per barrel. Therefore, the value of desalination will be driven by saving disposal costs and could be from $2 to $3/BW (per barrel of water) in the future,” it said in the final report on its project.
Disposal currently costs cents per barrel, but that could rise as injection sites fill up and waste needs to be trucked or piped ever further.
Aris has strategic agreements with Permian oil majors including Chevron (NYSE:), ConocoPhillips (NYSE:) and Exxon Mobil (NYSE:) to develop and pilot technologies for treating produced water for potential reuse.
Exxon subsidiary XTO has also partnered with Infinity Water Solutions, another water treatment firm running a pilot project in the Permian.
“I can tell you, the H2O molecule has no value until you run out of it,” Infinity CEO Michael Dyson added.
TERRIFIED OF GETTING IT WRONG
Avner Vengosh, a professor of environmental quality at Duke University, said unknown safety risks are also a key concern.
Under federal law, U.S. producers are not required to disclose all the chemicals they introduce to oil wells while drilling, raising worries that water treatments and testing are missing some dangerous components.
“There are a lot of technologies that can treat the water but the question is how can we evaluate all possible contaminants in produced water? I’m not saying it’s impossible, but I am saying it needs to be done correctly,” he said.
Infinity’s Dyson agreed the industry needs to tread carefully.
“We know we’re only going to get one real chance of getting this right, and if anything, I think most of us are terrified of getting it wrong,” he said.
The state’s environment department is updating its 2019 Produced Water Act with the aim of firming up water reuse rules and expanding research and development for use outside the oil and gas sector.
During a week of hearings on the effort in early August, divisions were huge, with environmental groups and some scientists questioning how safe the end-product could be.
Daniel Tso, a former Navajo Nation Council member, told Reuters the Navajo had been stung before in New Mexico when decades of uranium mining on their land in the last century led to widespread radioactive pollution.
“Now the industry is trying to make this a public problem and the public has to really scrutinize the effects,” he said of produced water.
James Kenney, New Mexico’s environment secretary, told Reuters that the advances in technology over the last five years give him confidence that treated produced water can be safe, but acknowledged New Mexico’s poor record.
“We have to acknowledge our history of things like uranium mining, the promise of wealth and the failure to protect health. So communities are right to be skeptical,” he said.
For Aldridge, though, the more he learns about wastewater treatment technology, the more willing he is to fight for the state to open up more uses for the water.
“Am I 100% convinced? No, but they’re taking a step to convince me and I need to take those steps with them,” he said.
His own rural town of Jal, he said, could become home to “industries of the future” like data centers or green hydrogen projects, businesses that need ample supplies of water.
Or it could dry up, like the drilling industry will when the Permian empties of oil and gas.
“I just can’t abide by the idea that small rural communities like Jal can just vanish.”
By Florence Tan, Alex Lawler and Robert Harvey
LONDON (Reuters) – Big energy merchants trading oil cargoes that form the basis of the Brent benchmark have used a little known rule to reroute U.S. shipments from Europe, in a practice that raises doubts over whether reforms to the crude price marker have succeeded.
Brent, the most significant benchmark across commodity markets, is used to price more than 60% of globally traded crude and underpins oil futures. Its value affects fuel prices paid by consumers and businesses.
The 2023 addition of to the benchmark had the potential to limit the scope for trading plays that can distort Brent prices, analysts said at the time. But the reroutings have renewed concern in the market about how well the benchmark reflects supply and demand.
Platts, a unit of S&P Global Commodity Insights, last year allowed U.S. WTI Midland crude delivered to Europe to be included in its Brent price assessment, called dated Brent. This was to boost liquidity as supplies from the mature North Sea Brent and other oilfields have dwindled.
But in recent months, some WTI cargoes that traded for delivery to Europe via the Platts system, known as the window, never arrived, at least five trading sources said, declining to be named because they were not authorised to speak publicly. The later rerouting has not been previously reported.
Trading companies that deal in the U.S. oil used a clause in the Platts methodology for all commodities, called bookout, to change destinations from Europe to Asia or to keep oil in the United States. The methodology in which bookouts are noted is publicly available on Platts’ website.
Although allowed under Platts’ rules, the sale and later rerouting of the cargoes can impact prices including that of dated Brent, traders and industry analysts said, because it creates a perception demand in Europe is stronger than it is.
Reuters has not, however, been able to establish any conclusive link between the cargo trading activity and prices over the period.
“The issue is traders watch the delivered trades and count barrels arriving to Europe. Those barrels set dated Brent,” said Adi Imsirovic, a trader, who has published books and papers on Brent and runs consultancy Surrey Clean Energy.
“If you then book out those trades, the barrels – which you think there were plenty of, and which have already set the dated price – suddenly disappear.”
Platts said it had not received any complaints about the practice and it was aware “a small minority of cargoes” changed their sales basis from a delivered cost, insurance and freight (CIF) basis to free on board (FOB), which can go anywhere.
“Such contract amendments are typical in many markets,” Joel Hanley of S&P Global Commodity Insights said.
Platts said more market participants have joined its dated Brent process since WTI was added – in a vote of confidence in the reforms.
NO PLAN TO DISCLOSE
Trading firms Trafigura, Gunvor and Vitol are among those that have used bookouts to change the destinations of WTI cargoes traded into dated Brent, the trade sources said.
A Trafigura spokesperson said: “As set out in the Platts methodology and is common across industry participants, we seek to agree requests from our buyers for additional discharge options where market forces dictate re-direction of cargoes.”
Gunvor and Vitol declined to comment.
Platts assesses dated Brent’s price based on the cheapest of five North Sea crudes – Brent, Forties, Oseberg, Ekofisk and Troll – and WTI Midland on the day.
Thomson Reuters (NYSE:) competes with Platts in the provision of news and price assessments about the oil market.
Imsirovic said Platts should be informed if physical Brent trades are booked out because if the original deal set the price, Platts may need to adjust the assessment.
Platts has no plan to make CIF to FOB conversions transparent by publishing them or to retroactively change its assessments if cargoes change destination, Hanley said.
He said mutual agreements post-trade are normal practice and the fair value of the oil delivered into Europe was reflected on the day by the CIF trade.
U.S. regulator the Commodity Futures Trading Commission (CFTC) declined to comment as did the European Securities and Markets Authority (ESMA), which referred Reuters to the Dutch Authority for the Financial Markets (AFM).
AFM declined to comment, saying this was because Platts’ crude oil benchmark does not fall under the EU Benchmarks Regulation and AFM does not supervise it.
SHIPMENT TO CHINA
In one WTI deal that was booked out, Trafigura on Oct. 2 2023 sold three cargoes for delivery to Rotterdam and later negotiated a destination change to China, trade sources said.
On that day, Forties, Brent and WTI crude’s differentials to dated Brent rose on strong demand, with Forties hitting its highest in over a year according to LSG data. Platts said WTI and Brent were the cheapest grades and helped establish the dated Brent price.
futures dropped by almost 5% and dated Brent as assessed by Platts dropped by 1.8% to $94.555 on Oct. 2.
Other trading companies including Vitol and Gunvor have since bought 700,000-barrel cargoes of WTI on a delivered basis to Europe that later converted to FOB, the sources said.
Reuters could not quantify the exact number involved. Platts said it had seen six instances of cargoes switching from CIF to FOB in 2024 to be combined in a larger ship.
Jorge Montepeque, who developed dated Brent and later left Platts and became a critic of the WTI addition, also said changes of cargo destinations must be disclosed.
“One could say that the bidding by traders for WTI cargoes helped distort the perception of demand in Europe where there was no demand for such cargoes,” he said.
Hanley of Platts disagreed, saying it was not possible to create a perception that demand is higher than it is in pricing terms, because if you bid higher a seller will take up your bid.
By Paul Carsten
LONDON (Reuters) – Oil prices climbed more than 3% on Wednesday as Israel and the United States vowed retribution over Iran’s biggest ever direct attack on its regional adversary, firing more than 180 ballistic missiles.
With Israel also ordering more soldiers into Lebanon to battle Iran-backed militant group Hezbollah, the conflict has rapidly intensified with little sign of de-escalation despite international pleas.
That has sent oil prices surging, with futures up $1.94, or 2.6%, to $75.50 a barrel. U.S. West Texas Intermediate (WTI) crude jumped $2.02, or 2.9%, to $71.85 at 1256 GMT.
Both crude benchmarks on Tuesday surged more than 5% before closing around 2.5% higher.
Iran said early on Wednesday that its missile attack on Israel was over barring further provocation.
Israeli and U.S. retaliation “could include damaging or obliterating Iran’s oil facilities,” said Tamas Varga of oil broker PVM.
Tehran said any Israeli response to the attack would be met with vast destruction.
Varga noted Iran’s or its allies’ retaliation could strike Saudi oil facilities like in 2019 or see the closure of the Strait of Hormuz. “Any of these events would irretrievably send oil prices considerably higher,” he said.
In another escalation of the conflict, the Israeli military on Wednesday sent regular infantry and armoured units to join ground operations in southern Lebanon against Iran-backed Hezbollah.
The United Nations Security Council scheduled a meeting about the Middle East for Wednesday, and the European Union called for an immediate ceasefire.
Iran’s oil output rose to a six-year high of 3.7 million barrels per day (bpd) in August, ANZ analysts said.
“A major escalation by Iran risks bringing the U.S. into the war,” Capital Economics said in a note. “Iran accounts for about 4% of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted.”
A panel of ministers from OPEC+, which includes Russia, meets later on Wednesday to review the market, with no policy change expected. The group is set to raise output by 180,000 bpd each month from December.
“Any suggestion that production hikes will proceed could offset concerns of supply disruptions in the Middle East,” ANZ analysts said.
However, Saudi Arabia’s oil minister said that oil prices could drop to as low as $50 per barrel if OPEC+ members do not stick to agreed-upon production limits, the Wall Street Journal reported on Wednesday citing delegates from the oil producers group.
By Arunima Kumar
(Reuters) -Oil prices edged lower on Tuesday as a stronger supply outlook and tepid global demand growth outweighed fears over escalating conflict in the Middle East and its impact on crude exports from the region.
futures for December delivery slipped by 49 cents, or 0.7%, to $71.21 a barrel by 1117 GMT. U.S. West Texas Intermediate (WTI)crude futures lost 55 cents, or 0.8%, to $67.62.
Brent fell as much as 2.5% earlier in the session and WTI crude plunged by 2.7% before paring losses.
A panel of top ministers from the OPEC+ producer group meets on Oct. 2 to review the market, with no policy changes expected. Starting in December, the OPEC+ comprising the Organizations of the Petroleum Exporting Countries (OPEC) plus allies such as Russia is scheduled to raise output by 180,000 barrels per day (bpd) each month.
The possibility of Libyan oil output recovering also weighed on the market. Libya’s eastern-based parliament agreed on Monday to approve the nomination of a new central bank governor, which could help to end a crisis that drastically reduced the country’s oil output.
“Opposing forces are keeping oil sideways trading for now,” said UBS analyst Giovanni Staunovo, pointing to Chinese stimulus, U.S. oil demand growth and slowing supply growth on the positive side and a looming resumption of Libyan output on the negative side.
In China, manufacturing activity shrank sharply in September, a private sector survey showed on Monday.
Analysts say a slew of stimulus measures over the past week are likely to be enough to bring China’s 2024 growth back to about 5% after several months of below-forecast data cast doubts over that target, though the longer-term outlook remains little changed.
Israel began ground incursions in Lebanon on Tuesday, with its military saying troops had begun raids against Hezbollah targets in the border area.
The attacks follow Israel’s killing on Friday of Hezbollah head Hassan Nasrallah and represent an escalation in a conflict that now threatens to suck in the United States and Iran.
“Risk weighting for front-month oil futures is currently contingent upon what Israel might do next and if there is a direct confrontation with Iran,” said independent oil analyst Gaurav Sharma.
In the United States, crude oil and fuel stockpiles were expected to have fallen by about 2.1 million barrels in the week to Sept. 27, a preliminary Reuters poll showed on Monday.
The poll was conducted ahead of a report from the American Petroleum Institute industry group due at 2030 GMT on Tuesday.
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