(John Kemp is a Reuters market analyst. The views expressed are his own)
By John Kemp
LONDON, Feb 6 (Reuters) - For 25 years, U.S. specialists in international relations have been predicting water shortages will become a source of conflict.
But the real water wars are brewing at home, where farmers, environmentalists and the oil and gas industry are falling out over water supplies in the drought-stricken Southwest.
Hydraulic fracturing uses enormous quantities of water to shatter shale and other tight rock formations by pumping millions of gallons of water deep underground under intense pressure.
Most of the water employed in America's energy revolution is fresh water taken from the same aquifers used by farmers and homeowners to irrigate their fields and lawns, as well as for drinking and washing.
And many wells are being drilled in parts of the United States such as Texas and Colorado that are suffering from a prolonged drought, where the water table has been falling because water withdrawals have been exceeding the rate at which aquifers are recharged by rainfall.
"Hydraulic fracturing is largely taking place in regions already experiencing high competition for water," according to Ceres, an influential non-profit organisation focused on climate, water and sustainability issues that advises major institutional investors.
"Policymakers are increasingly recognising that regional economic reliance on groundwater in many regions may not be sustainable and that groundwater withdrawals by all users must be carefully balanced," Ceres wrote in a report on "Hydraulic fracturing and water stress" published on Wednesday.
Between January 2011 and May 2013, almost 100 billion gallons of water were used to fracture 39,000 oil and gas wells, according to an analysis by Ceres of well records submitted to the industry's FracFocus registry.
On average, each well used 2.5 million gallons of fresh water. The total consumption was equivalent to the annual water needs of 55 small cities with an average population of 50,000.
The problem with using fresh water for fracking is that it becomes contaminated with oil, salt and chemicals and must then be injected into disposal wells so deep that it never returns to the fresh water supply.
Ceres argues that the best way to understand the scale on which water competition and risks are occurring is local, which makes some sense because water supplies are usually managed at the state and county level, and it is normally uneconomic to transport water over long distances.
Based on frack registry data, Ceres has identified 32 counties in which more than 1 billion gallons of water have been used for fracking. A billion gallons is roughly equivalent to the daily water use of the 8 million residents of New York City.
Ceres highlights several areas where water competition has become intense. In Colorado's Weld County, for example, the 1.3 billion gallons of water used for fracking in 2012 was equivalent to 15 percent of the amount used in the county for residential consumption.
But the biggest problems are in sparsely settled rural counties with small populations that were already suffering from water shortages before the sudden increase in demand from oil and gas producers.
Ceres spotlights DeWitt County (population 20,000) and Karnes County (population 15,000) at the heart of the Eagle Ford shale play in Texas, where the amount of water being employed for fracking is equal to or exceeds the amount being used by residential users and which are experiencing high levels of water stress.
FARMERS VERSUS FRACKERS
The major flaw with the Ceres report is that it fails to put the amount of water used by frackers in proper perspective.
The amount of water used in fracking sounds like a lot until compared with total water use in the United States.
The United States used 349 billion gallons of freshwater every day in 2005, the latest year for which comprehensive data is available, according to the U.S. Geological Survey (USGS) ("Estimated use of water in the United States in 2005" published 2009).
The biggest users of freshwater were coal, gas and nuclear power plants, which use prodigious volumes for once-through cooling systems.
But nearly all of their needs are satisfied by withdrawals from surface sources such as rivers and lakes. While the water is technically "withdrawn" from the source, most of it will be returned in a similar (though slightly warmer) state, so it is not really "consumed."
After power plants, the biggest single use of water is for irrigation, which includes crops as well as golf courses. In 2005, irrigation used 144 billion gallons of fresh water every day, of which 75 billion came from surface sources and 54 billion were pumped from underground aquifers.
In other words, frackers used the same amount of water in 2011-2013 that U.S. farmers typically withdraw from underground aquifers every two days.
The real competition is not between frackers and households, but between oil and gas producers and farmers.
In comparison, the daily consumption of fresh water by industry (17 billion gallons), mining (2.3 billion gallons) and homes and offices (48 billion gallons) is modest.
TARGET PROFLIGATE USERS
By comparing fracking with the residential water supply, the Ceres study makes the frackers' share look larger than it is and ignores the real problem, which is overconsumption of groundwater supplies by the farming industry.
Giant aquifers such as the Central Valley aquifer in California and the Ogallala beneath Texas and the other Plains states have fallen, in some cases by 100 feet or more, over several decades. The drop in the water table started long before the fracking revolution.
By focusing on just a tiny handful of the more than 3,000 counties in the United States that happen to have large numbers of oil wells, small populations, lots of farming, and droughts, the report makes fracking look like the culprit.
At the margin, fracking may make the existing water stress situations worse, but it does not cause them. The solution is not to regulate fracking on its own but to pursue a comprehensive reform of water allocation. The number one target has to be cutting wasteful water use by farmers.
Other sources of water stress come from the massive expansion of metropolitan areas in the arid of Southwest, which have seen the most rapid population growth of any cities in the country, in a region already severely short of water.
PRICING SCARCE RESOURCES
In its report, Ceres makes a string of recommendations to fracking firms and their investors to conserve water. But the real challenge is to force everyone (farmers, urban developers, homeowners and golf course owners as well as frackers) to think more carefully about water use.
At a regional level, water consumption is far too high across much of the Great Plains and Southwest. Low prices and poor regulation have encouraged over-consumption.
The solution is a better specification of water rights, higher water prices and a more market-oriented approach that allocates water to the customers who value it most and are able to pay the highest prices for it.
At the county level, the problem is excess consumption coupled with the lack of transport infrastructure in small rural counties. Again the solution is to improve regulation and raise prices to ration the available supply and encourage frackers, farmers or local water companies to bring in more water from outside the county.
Ceres spotlights the experience of Kern County, California, the country's largest producer of almonds, pistachios and citrus, where the oil industry and farming have coexisted for decades. Many farmers receive royalties for oil wells on their land among their groves.
"Although the oil and agricultural industries have coexisted for many years in Kern County, elevated water use for hydraulic fracturing in the context of massive drought could alter this course," it warned. "There are growing concerns that the agriculture sector will find it more lucrative to sell their water for oil exploration than growing crops."
But that is surely the point: in a market economy, clear property rights coupled with price signals channel scarce resources such as water to those who value them and can pay the most. If farmers can make more money selling water to fracking firms than by irrigating their fields, they should be allowed to do so. (editing by Jane Baird)
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