No water, no oil: How the parched western provinces could hamper the oilpatch

Persistent and severe drought conditions across Western Canada could have a devastating effect on the oil and natural gas sector, which has drilling operations in some of the driest areas, according to a new report by Deloitte.

Limited water supply could have significant effects on the production of oil and gas, the report warns, and the timing couldn't be worse for the industry as many companies are wanting to increase production and drilling with new export pipelines and facilities nearing completion.

The past several years have been parched in parts of Western Canada, but there is extra concern this year because of the below average snowpack in the mountains.

"It's not going to be as simple to just pipe fresh water in. You may need to move it and truck it to different locations," said Andrew Botterill, an energy analyst with Deloitte Canada, in an interview with CBC News.

In B.C., the provincial energy regulator has warned snowpack levels were only 72 per cent of the historical average. 

Trucking in water and recycling water will both result in more "expensive and complicated" operations for companies, he said.

Many communities are already on high alert about a devastating drought and possible impacts on drinking water and availability for industries, such as agriculture.

It's the fourth year of drought conditions and regulators have warned industry about potential water restrictions this summer. The amount of water used to produce oil and gas can vary, with drilling activity in some regions using up to 10 times more water compared to other areas, depending on geological factors, according to the Alberta Energy Regulator.

The regulator is already restricting how much water oilsands and other energy projects can withdraw from part of the Athabasca River and other rivers in the province. Some communities have also banned the oilpatch from using municipal water. 

"The allocation of water is going to be an increasingly important issue," said federal natural resources minister Jonathan Wilkinson. "The long-term impacts of climate change mean that this is going to be a continuing challenge that we are going to have to engage."

Water is used for drilling and for fracking — a common technique where a high-pressure mixture of water, sand and chemicals are injected into an underground rock formation to create cracks and access oil and natural gas. Using recycled water can impact the effectiveness of drilling, which can increase costs.

Currently, oil prices remain above average compared to the last decade, but natural gas prices are depressed. That's why drought conditions could have a bigger impact on production of natural gas.

"When you combine the fact that there may be areas where water is scarce together with the fact that gas prices are low, the appropriate thing to do is to not force the issue and try to deliver more production with a higher cost," said Mike Belenkie, CEO of Advantage Energy, a mid-sized company producing mainly natural gas.

Belenkie has kept a close watch on precipitation levels throughout the winter, not only because of the water shortage but the increased risk of wildfires, too.