Sourcewater

JOSH ADLER: Hi, I'm Josh Adler, and I was a Sloan Fellow for Innovation and Global Leadership in 2013. While I was at Sloan, I was in the Energy Ventures program and learned a lot about the energy space there. And I'm really interested in particular in the growth in unconventional energy production in the US, basically hydraulic fracturing. I was just amazed at how big this phenomenon had become and how quickly. And I was certain that anything that's become that big that fast has to have all kinds of chaos in its supply chains and operations, all kinds of problems to solve. And while in the Energy Ventures program, I had the insight to create Sourcewater, which is an online market for sourcing and recycling and managing water for oil and gas production.

Let's say you are a water engineer or completions manager in the field who's planning an oil or gas well. One of the things you need to do is plan out your water supply for that well. And today that process is very labor intensive. It means making lots of phone calls and maybe even sending landmen, essentially real estate agents, into the field to knock on doors at farmers' and ranchers' places, find where you're going to get that water from. It can take weeks to make that water supply plan.

What we have done with the Sourcewater marketplace is we've create a system that's much like popular web marketplaces like Kayak or Orbitz or Expedia in the travel sector, or Airbnb for lodging, so that-- or one of my favorites, match.com. It's kind of like matchmaking also-- so that this water engineer can go online and in about 10 minutes locate all of the sources of water near them, see the qualities of those different water sources, see the prices of those different water sources, and book these different sources in whatever volume they need, and basically complete that water planning and booking process.

Sourcewater is not just about the sourcing of the water itself. It's actually about matching supply and demand throughout the entire water management cycle. So it's about finding the water, but it's also about finding the transport for the water, the storage for the water, the treatment for the water, and ultimately either the recycling or disposal for the water.

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SPEAKER 1: The genesis of Sourcewater came from two basic insights. First of all, the one ingredient that's really new in unconventional energy production now, or hydraulic fracturing, is the need to use water for producing oil and gas. That's completely new and has only become a phenomenon in the last five or six years.

About 70% of hydraulic fracturing takes place in areas that are considered water stressed. So west and south Texas, Colorado, North Dakota, Oklahoma, a few other places. What happens if you're a water manager for oil and gas production, let's say in Midland, Texas, and you've been planning to complete five wells that are coming up for the last 12 months. You arrange your water supply. Maybe you've got a permit for groundwater well six months ago, 12 months ago.

Well, now it's time to go pick up the water, because you actually need it in a few days. You send a fleet of 1,000 trucks to pick up the water from the groundwater well. Because one well needs between one and 2000 truck trips of 110 barrel trucks of water. Just one well. And you're probably planning five or 10 wells.

So you send the trucks to pick up the water, and you find out there's a record drought on and the well's dry. You thought you had a well that you planned for 12 months ago to pull the water from, and the water's just not there. Or because of the drought, the groundwater authority put a freeze on pulling that water out of the ground because they want to conserve it.

What do you do? You've got a delay cost of $400,000 a day that's going to start in a couple of days, and you don't have the water to start well completions. And so thinking about being in the shoes of that person, I thought, where do you get the water you need? I mean, there's no water Yellow Pages. There isn't even a market.

I mean, who's your next call when the truck driver calls you and says, there's no water here. There's nobody. You're basically calling your buddies to see if they have anything extra. And it's not that easy to come up with 10 million gallons of water. That could just be for one well. Five wells? It could be 50 million gallons of water that you need in a couple of days, and you don't know where you're going to get it.

So the basic insight that came from that that is, what they need is a market. You need better information. You need lots of sources, small and large, so that if any one of them falls through, there are dozens more you can turn to fill that order on short notice. At different prices, different locations, different qualities. But at least you can get it.

The other basic insight that led to the creation of Sourcewater is that the oil and gas industry actually produces about 10 times as much water as it consumes. People don't think about that because you hear that hydraulic fracturing, or fracking, is using all this water in these areas. But actually oil and gas wells produce way more water than they produce oil or gas.

And that water is usually called produced water, and a lot of it is water that's been basically stewing underground for the last 100 million years. And there's not a whole lot you can do with it unless you really heavily treat it. But it turns out that there's very little treatment needed to be able to reuse that water in place of fresh water in a new oil or gas well.

So in other words, the oil and gas industry actually creates far more water than it consumes. And it's also in the fairly unique position of being able to use the wastewater to completely replace the fresh water that it's consuming in these areas. And so in the context of the marketplace, what's so interesting about that is, the oil and gas industry is actually its best source. It's both the use of water, but it's also the best source of water.

So the challenge there is, there's all of this wastewater around, but there's no way to find it today. There's no way to connect the sources and the uses, or the supply and demand, for non-fresh water. There's a well-established system from hundreds of years of sourcing fresh water. You file for your permits, and drill a well. There are surface water rights. But all these things are for fresh water.

There's never been a system for finding non-fresh water because no one's ever had a use for it before. But now there is a use. And so the best source for that use happens to be the oil and gas industry itself. And so it was those two insights, basically, that oil and gas producers without a marketplace are at a great risk of a very expensive supply chain disruption when they're operating in water stressed areas. And a marketplace can help them address that.

And the other it is that wastewater from oil and gas production that has long been looked at as a nuisance, or essentially as a liability, something that you have to pay to dispose of-- can actually be turned into an asset. And the problem can become the solution. And that's what we're trying to do with Sourcewater.

JOSH ALDER: There are a number of environmental advantages for the source water system. The biggest, of course, is that it creates a way to replace fresh water consumption with waste water consumption, thereby freeing up fresh water for the people and uses that really need it, whereas, in the case of oil and gas production, truly, the industry now understands that there is no need for fresh water in unconventional oil and gas production.

It's really just a matter of convenience that it's easy to find it. So by making it easy to find non fresh water, we can replace all of that fresh water consumption with non fresh water waste water consumption. So that's a really big environmental benefit. But there are a number of other benefits as well.

For example, the disposal of waste water, today, basically occurs through two methods. One is disposal into what are called class 2 underground injection control disposal wells. So this is an EPA regulated well that's a hole that goes deep underground below the water table that has been approved for disposing of hazardous substances, like oil and gas waste water. And you pump the waste water down into the well, and it never comes back.

The problem with that is that that water has been removed from the hydrological cycle permanently, forever. It's about the only use of water you can think of, where the water will never come back. And so in areas that are water stressed, and in the big picture really for the environment as a whole, you really want to keep that water in circulation if you can, as much as possible.

The other way that waste water gets disposed of today is by sending it to treatment facilities, and the treatment facilities will process the water, take most of the pollutants out, and then discharge it into surface water body, usually a river or stream. The problem with that is that, first, many of those treatment facilities were built and designed before the advent of waste water from hydraulic fracturing.

And they weren't really designed to deal with some of the stuff that's in that waste water. And as a result some of those pollutants can slip through the process and end up being discharged in the surface water. And usually, it still meets whatever the regulatory requirements are for discharging waste water, but that's not to say that it's water that perfectly matches the quality of what was in the stream or the river before. It's still not ideal.

It meets regulatory requirements, but it's not perfect. It's better not to discharge that water if you can help it. And so in all cases, the best thing that you can do with waste water from oil and gas production is use it in place of fresh water for stimulating a new well. That's just the best thing you can do with it from an environmental standpoint.

And so source water facilitates that by allowing the companies that are about to complete or stimulate a new well with the companies that happen to have waste water for disposal right now. And by connecting all those dots within a region, we're able to create a very efficient system that has a much better environmental outcome as well.

JOSH ALDER: MIT has been an essential part of source water from its first conception. Of course, I never would have even had the idea if I hadn't been a Sloan fellow at MIT and done the energy ventures class and learned all about the energy ecosystem, both in terms of conventional energy and alternative energy and all the kinds of issues that are going on there.

But even from there, almost everybody who's involved in the company has some kind of MIT affiliation, whether it's my director of product development who wasn't an MIT master's degree recipient in the Energy Initiative and is now actually a PhD candidate, whether most of our advisors-- I mean, one of our key advisors is a senior completion manager of one of the biggest energy companies, who I met, because he's a candidate for an EMBA at Sloan. And we were introduced as having some similar interests, and we've become friends, and he's been immensely helpful.

One of our key advisors is the MIT Energy Initiative's Director of Research, who's an expert on fracking and on natural gas. So just about everybody has been or is either a student or a professor at MIT. And none of this would have happened without that entire creative community that's around MIT that's entrepreneurial and that also, in this case, has tremendous expertise and capabilities in the fields of energy and water.

One of the things that we're most interested in working with ILP members on is being able to get beta testing input and feedback on our system in terms of its usability and design and how we can integrate it with energy company operations and water company operations. We want to be able to connect with those people in the field, whose problems we're trying to solve.

And so it would be very helpful to be able to work with ILP members to create that communication from our level of trying to solve problems, using technology, and the actual people in the field managing operations, whose problems we're trying to solve. And that's an area where I think we could work more with ILP and work more with ILP members.

It's the ILP members who really understand the value that source water can bring to the table, because that value is for them. It's savings to those energy and water companies and their operations, preventing supply chain disruptions, improving their environmental impact. And so we'd love to talk to those companies about the potential for strategic partnerships in terms of marketing and also in terms of investment. And that's an area where we'd like to see more communication as well.