Martin LaMonica, October 2, 2014
Entrepreneur Josh Adler was attending a lecture on fracking at MIT’s Sloan School of Management when the magnitude of the domestic oil and gas boom hit him. Like many Americans, he had no idea that fracking had exploded-there’s on the order of 20 times more drilling with fracking-in just the last six years.
“I just knew anything growing that fast must bring some chaos and performance gaps in the basic activities. Plus I knew the industry is slow to innovate,” Adler says. “Clearly, there are going to be some growing pains-the question was what they are.”
After further study, he focused in on water. Fracking, which is shorthand for hydraulic fracturing, uses millions of gallons of water mixed with sand and chemicals to crack, or fracture, shale rock deep underground. That high-pressure water releases the hydrocarbons captured in the rocks’ pores.
The spread of fracking in the U.S. has transformed the energy industry and global politics. It’s also resulted in massive amounts of wastewater that contain fracking chemicals and underground water that comes up after the well is producing oil or gas. Often, that wastewater is pumped underground in specialized “injection wells.” But it can also be reused on the next fracking job.
After working in real estate, medical devices, and Internet technology, Adler decided to go to business school at MIT in 2012, looking for a way to apply technology toward environmental sustainability. Initially, he looked at commercializing technology from MIT that would purify water using a graphene-based membrane, but he realized it would require years more lab work.
Then he met with MIT researchers who were using advanced math techniques to optimize how to reuse fracking water on a given well pad, which may drill several individual wells from a single point. That’s when the idea for a marketplace for used fracking water came to him. “Reusing water within well pads is more efficient, but it’s at the margins. The first-order problem is the whole supply water chain itself,” he said. “What was needed was a business model, not new technology.”
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Adler earlier this year started Sourcewater and designed an online exchange for owners of water to connect with buyers of water. The basic idea is the same as buying a digital camera on eBay: the seller will submit products for sale-in this case, access to millions of gallons of water for fracking-and potential buyers will bid on what they’re willing to pay. The company plans to release a beta product this month and have a commercial version ready by the end of the year, Adler says.
He’s pitching the water exchange to oil and gas drillers as a way to give them a second option. Sometimes, a driller will have secured rights in a certain location but then can’t get access to water because a drought has made the water unavailable or authorities limit access. Initially, he expects ranchers and other freshwater owners will make their water available to drillers. Over time, he expects to expand the service to include recycled water. Drillers in the Marcellus shale, which is under parts of Pennsylvania, Ohio, West Virginia, and New York, already reuse a lot of water because its saves them money. But because Texas has friendlier laws for water reselling, Adler expects the first customers will be there.
Eventually, the hope is that more entities that have wastewater will bid into the marketplace. That could include water from municipal wastewater plants, conventional wells, farmers, or landowners who have access to brackish water aquifers. More supply would in theory lower the price of water, Adler says. And if water is reused multiple times, it will cut down on the amount of water that’s pumped underground in injection wells.
What’s going to get drillers themselves to participate in this exchange? Adler thinks it will vary by location: in Texas, drillers are concerned about water availability just to continue their operations, while cost will be the main driver in the Marcellus shale area. “It makes sense economically and ecologically to reuse as much fracking water as you can,” he says.
There are a number of companies building membranes and other technologies to clean wastewater from drilling and other industries. Because it’s an Internet-based system, Sourcewater avoids a lot of the technical risk that comes at a startup developing materials-based technology. On the other hand, the success of the exchange will depend entirely on the level of participation and, because it’s a regulated industry, how easy laws make it for participants to buy and sell their wastewater.