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Amy McIntosh

MIT startup offers an online marketplace to help energy producers connect with water sources

Hydraulic fracturing is a rapidly growing industry that demands large amounts of water for short periods of time, in locations that often do not have a great supply. W&WD Associate Editor Amy McIntosh spoke with Josh Adler, founder of Sourcewater, about the need for a market to provide options for reusing and recycling water.

Amy McIntosh: What challenges do energy producers face due to the increasing regulations surrounding water?

Josh Adler: The regulatory requirements are complex because water regulation varies not only state to state, but county to county and district to district.

You can contrast regulations in Pennsylvania with regulations in Texas with respect to liability for wastewater generators. Texas recently passed a law that encourages wastewater recycling. [For example,] if a wastewater generator, like an energy company, transfers its wastewater to another company for reuse, as long as the generator has exercised reasonable diligence in the selection of the company, if the company that took the wastewater then causes a spill and there is environmental liability, the state and private parties cannot go after the original source because it was not its fault the spill occurred.

In some states, such as Pennsylvania, the current law is that wastewater generators could be held liable for a spill that involves wastewater that they generated even though it was no longer in their possession. As a result, that discourages companies from recycling their wastewater.

McIntosh: How can a water market alleviate the business risks associated with liability laws?

Adler: This liability is for potential wastewater spills, pollution from surface discharge, induced seismicity from wastewater disposal well usage-all of these types of liabilities are reduced by greater wastewater reuse and recycling in an efficient market. From a liability standpoint, it is better to recycle and reuse wastewater than dispose of it in injection wells.

Also, if many [water sources] are available in a market, the tendency is going to be to use the closest locations. A large part of water management costs is transportation of the water, so when you are using water from closer locations, it means the water is traveling a shorter distance, which means there is less time it is on the roads with the possibility of an accident or spill. By reducing the average distance that water is traveling, we are bringing down all of those liabilities.

McIntosh: Please explain Sourcewater and the inspiration behind it.

Adler: Sourcewater is an online exchange for sourcing and recycling water for energy production. At MIT, we were talking about technology fixes for challenges associated with different aspects of energy production and water supply. I found myself thinking from the perspective of an energy operator. Let’s say I had a groundwater permit to pull 600,000 barrels of water for five wells. A week before I plan to stimulate the wells, I send my trucks to pick up the water, but the well has run dry, or the groundwater district says that, because of the drought, it is only allowed to give us 100,000 barrels.

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Note: Access your free tour of Sourcewater’s online marketplace and water intelligence platform. Schedule yourself on our calendar by clicking here.

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At that point I thought, “Who do I call? Where are the Yellow Pages for water?” I realized that what [energy operators] need is a market. They need many small sources rather than one big source, so they are not at the mercy of one source falling through and causing an operational disaster. While water cost in itself is not a very large part of the total cost of producing an unconventional well, it is mission- critical to be able to produce it. If you do not have the water you need, you cannot do anything.

We do not necessarily need this advanced technology. The near-term solution is to have an efficient market for water so that you have many places you can go with different prices and different qualities, and so you know if anyone falls through, there is still a lot more to back you up.

Amy McIntosh is associate editor for W&WD. McIntosh can be reached at amcintosh@sgcmail.com or 847.954.7966.

For more information, write in 1111 on this issue’s reader service form on page 41.

Josh Adler, founder and CEO of Sourcewater, is a Sloan Fellow for Innovation and Global Leadership in the Energy Ventures program at the Massachusetts Institute of Technology. He has founded energy, real estate, medical technology and Internet companies; raised, managed and invested hundreds of millions of dollars; and served as a senior economic policy official for the U.S. Treasury Department. He is a graduate of Yale University and MIT. His writing has appeared in The New York Times, The Wall Street Journal, The Washington Post and The Economist. Adler can be reached at josh@sourcewater.com.

Creating a New Normal

Historically, freshwater has been the water of choice for energy producers. Freshwater is regulated and easy to obtain in large quantities, so it has become the go-to resource for energy operators, but it is not the only option for hydraulic fracturing.

“We are seeing a revolution in the way that water, especially non-freshwater, is considered from an economic and contextual standpoint,” Adler said. “Until now, any type of water that is not freshwater has been essentially considered to be wastewater.”

Adding non-freshwater to the supply-anddemand model of the water market would potentially lower the cost of water across all industries, increasing both the economic and environmental benefits for parties across industries.

“Market forces appropriately applied can result in greater conservation and efficiency of freshwater resources and can lead to freshwater being used appropriately,” Adler said. “Freshwater can serve human uses, while businesses can conserve water and improve their operational efficiency and cost structure by using water that is not freshwater when feasible.”

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