The LEIF Brief: Water Innovation in Oil and Gas 2014 – Executive Summary

The LEIF Brief: Water Innovation in Oil and Gas 2014, in association with Global Corporate Venturing

The LEIF Brief: Water Innovation in Oil and Gas 2014 will be presented at ‘Venturing in the water- energy Nexus’, a round-table discussion and seminar in London on October 15th, and published soon thereafter by Global Corporate Venturing. The two main speakers on October 15th will be Wayne Evans, VP – Industrial Technology at Veolia Water Technologies, and Christopher Gasson, publisher of Global Water Intelligence.

If you’re an innovator or an investor in this area and you’d like to contribute or comment, or if you’d like to sponsor the report and/or attend the discussion, please contact tom.whitehouse@london-eif.com

Sponsored by: Veolia Water TechnologiesVeolia

Executive summary

The oil and gas industry urgently needs new technologies to solve its mounting water problems.

A growing array of technologies and entrepreneurs are responding with innovative new solutions.  Venture capital – including the corporate venture capital funds established by ‘big oil’ and the ‘family offices’ of successful industrialists – is therefore seeking out water technology investment opportunities.

This is a growth market

GWI reports that the global market for water management solutions and services in the oil and gas industry is worth $37.9 billion in 2014.The market for water-tech is growing globally:*

  • North America – This region will experience 13.9% annual growth in capital expenditure, making it the fastest growing region in the world. Continued expansion of SAGD production in Canada, and the booming development of tight oil resources in the US make this one of the most exciting areas for water technology providers.
  • East Asia/Pacific – Coal seam gas in Australia accounts for most of the growth in this region, pushing total capital expenditure to $1.1 billion in 2020. Advanced treatment technologies, including reverse osmosis, are already being employed. Additional water treatment plants are already planned to cope with the produced water volumes from Australia’s CSG-to-LNG export projects.
  • Middle East/North Africa – Projected increases in production in Iraq will require substantial investments in produced water treatment: expenditure is expected to reach $85 million by 2020, with an annual growth rate of 8.2%. Maintaining production levels in the Gulf Cooperation Council (GCC) countries will require the more efficient management of produced water. Expenditure across the Middle East/North Africa region is estimated to be $526 million in 2014.

 Investment appetite for water-tech is therefore growing, boosted by a high profile ‘good exit’ for venture investors

The sale of NanoH2O, a high efficiency desalination business that started life as a Stanford University spin-out, to South Korean conglomerate LG for $200m is a great confidence booster for the water-tech sector and a ‘good exit’ for its investors, who included Total Energy Ventures and BASF Venture Capital.

Desalination is hot

The majority of investment activity is in desalination and its sister industries, brine concentration, evaporation and crystallisation.

So is water-related chemical innovation

Chemical innovators are raising capital. New chemicals can eliminate or reduce water use in oil and gas extraction. But this can lead to new water treatment challenges when these chemicals reappear in the flow-back water.

And separation and recovery

Separation, recovery and disposal technologies that can isolate and recover toxic and/or valuable materials and chemical from oil and gas industries’ waste water are also getting investor attention.

Corporate venture capital and family office investors step up as mainstream (i.e. non-specialist) financial venture capital retreats

The most active investors in water-tech are corporate venture capitalists (owned by service providers and end-users) and specialist family offices and financial venture capitalists. Mainstream financial venture capital is not a significant force in water-tech investing.

Chinese coal-to-liquids and shale gas create new water-tech markets

China’s determination to convert its abundant and cheap coal to more valuable liquids and / or chemicals is creating a vast new market for water-tech, particularly in waste water recycling. Coal-to-liquids is very water-intensive, but China’s coal regions are very short of water. The same is true for its shale gas regions.

Synthetic biology has huge potential long term significance

Early stage technologies that are exciting investor interest include synthetic biology applications where there is the potential to make water ‘work harder’ in oil and gas extraction or to replace it, and to treat waste water in new novel ways.

Is Putin long on water-tech?

The Russia-Ukraine conflict is causing a change of heart about shale exploration among some European governments. This could in turn provide a long term boost to water-tech.

*GWI report: Water for Onshore Oil & Gas – Opportunities in produced water management, hydraulic fracturing & enhanced oil recovery

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