December 1, 2015

Industrial water sales dry up as fewer wells completed

By Amy Robinson
Farmer Staff Writer

Revenues from industrial water sales have decreased over the last six months in western North Dakota, but domestic water sales are up by about 30 percent.
“We’ve seen probably anywhere from a 50 percent decrease, and in some cases, a 75 percent decrease in industrial water sales in the last six months,” said Jaret Wirtz, executive director for the Western Area Water Supply Authority (WAWSA). “But domestic water sales are still increasing and are up by approximately 30 percent.”
In 2014, the annual daily average for industrial WAWSA water users was 4.86 million gallons of water a day and the 2015 daily average is down to 3.52 million gallons of water a day.
Due to declining oil prices, increased competition created by an open market, as well as WAWSA’s commitment to only build infrastructure on corridors required for domestic municipal and rural water usage, industrial water sales have taken a major plunge. But according to WAWSA, there are approximately 58,000 new wells that need to be drilled eventually.
“Because there has been a decrease in fracking, a decrease in the amount of wells, a decrease in the transportation of water, and a decline in drilling activity,” states Wirtz, “the industrial water sales are being affected negatively. We are hoping to see an upturn in the market.”
The industry is trying to reduce their costs, says Wirtz, and transportation of water is a big portion of that industry.
WAWSA funding through the 2015 to 2017 biennium included 32 percent of State grants and 68 percent of State loans, for a total of $80 million. This split, according to Wirtz, includes a much lower grant percentage than the typical regional/rural water systems in North Dakota.
“Since 2013, WAWSA has repaid $21.5 million in principal and paid $8.6 million in interest to the State of North Dakota toward loans backed by industrial water sales,” stated Wirtz. “On the first note required to be repaid, WAWSA has worked with the Bank of North Dakota to prepay the principal through June of 2017 during months of higher industrial water sales.”
In 2013, the North Dakota Legislature created a free market for oil and gas industrial water sales through the passage of Senate Bill 2233. The free market led private companies utilizing the Missouri River and the Yellowstone River water to build several pipelines throughout McKenzie and Willimas counties. These private water pipelines can be built directly to where the industrial water demands are the greatest.
“With the state creating a free market in industrial sales, it’s created a huge increase in competition from private water developers,” said Wirtz. “These other entities are able to drill and bring water to those areas we can’t tap into. However, we are lucky to have enough prepaid money on the state loans. If things stay the way they are currently, we may have to take other measures to get those repaid.”  
WAWSA’s business plan was needing 20 to 25 percent of the market share to ensure industrial loan payments. They had about 20 percent in 2014 and that amount decreased to about 16.5 percent in 2015, based on the figures provided by the North Dakota State Water Commission. Overall, WAWSA will still do about $24 million in sales for 2015 compared to $35 million last year.
“The first six months of this year looked good,” stated Wirtz. “But after May, we had a big downturn.”
On a more positive note, according to Wirtz, WAWSA is selling about one million gallons of water more per day. And it is because they are starting to see people move into more permanent housing.
“In August 2015, we were selling about 7.9 million gallons of water, which was up from last year where we sold about 6.95 million gallons. We are getting more residents connected to water. We are still seeing a lot of growth, and a lot of construction going on. And that growth is still going to continue and we’ll see that next year.”
According to Jeff Shaffer, McKenzie County Water Resource District director, for the 2014-2015 year to date, the city of Watford City is up over 30 percent in their water usage. And almost 40 percent during the summer. And that number could even be higher by the end of the year.
Shaffer is still getting inquiries from interested contractors for building projects, especially with the lower water prices.
“McKenzie County will continue to see growth,” stated Shaffer. “Through the construction season, WAWAS was able to add another 250 customers. When all is said and done, we’ll add another 150 to 200 customers in 2016.”
According to Wirtz, there is a huge benefit to selling water to industrial customers. It ultimately keeps the water prices down for residential customers. With industrial sales, WAWSA is able to make revenues in other areas, again keeping the prices down for domestic water customers.
So although industrial water sales have taken a plunge, domestic sales have remained strong and continue to increase. And that trend doesn’t seem to be slowing down any, at least not for another year or more.
To date, 800 miles of pipe have been constructed in western North Dakota, with 1,200 miles left to install. And there are still numerous pump stations, reservoirs, and plant upgrades that will be needed in the future.