US shale boom drives oilfield chem demand - study
The oilfield specialty chemicals market grew to nearly $16 billion in 2010, driven in large part by the rapid expansion of shale oil and gas drilling and production in North America, according to a new IHS Chemical global market study.
The market was particularly strong in the US and Canada, which accounted for more than $8 billion or 52%, the IHS Chemical 2012 Oil Field Chemicals Report says.
World demand for these chemicals is expected to grow at an average rate of 3.5% during the next five years, the study says, with sales expected to increase to almost $19 billion by 2015.
The next closest global consumer of oilfield chemicals, the report noted, was Latin America, particularly in Brazil, which came in at 11% in 2010, or nearly $1.8 billion of sales.
The Russian/CIS and African regions each followed with 8% of the global demand for oilfield chemicals, or slightly more than $1 billion in sales. The Middle East, Asia Pacific and European regions each followed with 7% of global demand, or close to $1 billion each in market share.
Despite the global economic crisis, the market grew during the past four years, and a rising oil price through mid-2008 increased the attractiveness of renewed drilling efforts, the study said.
However, price inflation, concurrent with shortages of key chemicals ingredients, combined to make a tight supply/demand balance for some products.
“Due to favorable oil and gas prices and advances in technology, there has been a significant increase in hydraulic fracturing particularly in North America,” said Ray Will, principal analyst at IHS Chemical and co-author of the report.
“This has made natural gas production possible in previously uneconomic reserves in shale deposits bringing record quantities of gas to market in the US,” he added.
“Naturally, this increase in drilling and production has resulted in higher volumes of drilling, stimulation and cementing chemicals. In turn, increased supplies of natural gas have caused price declines, making gas more competitive both for electricity production, and as a raw material for chemicals production here in the US.”
According to the report, issues relating to health, safety and the environment do have a major impact on the current and future use of oilfield chemicals.
The area where environmental regulations have had their greatest impact is offshore, with North America and Western Europe leading the way with a formal regulatory framework.
The general issues related to the environmental impact of oilfield chemicals are all associated with the effluent discharges made during field operations, IHS said.
Recently, North American and European attention has shifted to concerns over hydraulic fracturing or “fracking,” and new regulations are coming into force regarding this practice.
Since the Deepwater Horizon accident in the US Gulf of Mexico, the US Secretary of the Interior created three new regulatory agencies to oversee the industry, with the Bureau of Safety and Environmental Enforcement considered the most important for the oilfield chemicals business, and many state agencies are advancing their own regulations.
In addition, the US Securities and Exchange Commission (SEC) is asking oil and gas companies to supply detailed information including chemicals used, in order to minimize environmental impact.
“In part, the requirement for disclosure will tend to favor more environmentally friendly chemicals,” Will said. “As environmental regulations become more stringent, chemical manufacturers have an opportunity to develop more environmentally friendly products.”
Oilfield chemicals typically fall under three categories: drilling fluids, cementing and stimulation, and oil production.
Drilling muds and fluids are chemical systems used to lubricate the drill bit, to control formation pressure, and to remove formation cuttings. They can be oil- or water-based depending on the geologic formation.
Cementing uses chemicals to cement steel pipes or casing to the sides of the borehole. Stimulation chemicals encourage the flow of crude oil to the well.
Two commonly used stimulation techniques are acidizing and fracturing - an essential part of hydraulic fracturing. Oil production chemicals are used at all stages from oil production at the wellbore to delivery of crude to the refinery.
Products include corrosion and scale inhibitors, biocides and demulsifiers.
Though growth in demand for oilfield chemicals has been significant in Latin America, the report noted, political instability has limited activity in Venezuela, the report says.
While Africa has also seen significant growth across the continent for oilfield chemicals, which is expected to continue for the next five years, political instability is also a threat to activity - particularly in Libya and Sudan.
According to IHS, Iraq has the greatest growth potential for the oil field chemicals sector during the next four years, as it seeks to rejuvenate oil fields and explore for new reserves.
But again, political factors will continue to have a major impact on the market potential, according to the report.
“Many of Iraq’s new fields present significant technological challenges such as drilling in deepwater or working in high-temperature, high-pressure and corrosive conditions,” said Will. “These wells will require larger volumes of more expensive chemicals than most conventional wells, so the volumes of chemicals used, and the value of those chemicals, will go up.”
Since most of Europe’s oil field production is the North Sea, aging wells have been accompanied by corrosion and scale.
In addition, European environmental concerns have led to restrictions or outright bans on many chemicals formerly employed, so alternative products or techniques that are generally more expensive have been employed.
According to the report, growth in the drilling, cementing and stimulation sectors will be low in this region, but the production chemical sector will continue to grow strongly.
The Asia-Pacific market will show strong growth in the drilling, cementing and stimulation markets, while production chemicals are likely to grow more slowly due to much of the new development coming from shale gas fields, IHS said.
The global oil field chemical industry is dominated by large corporations such as Halliburton, Schlumberger and Baker Hughes, which are also active in the wider range of oil field services such as exploration, drilling, design and engineering.
All three have added to their traditional cementing/stimulation services by acquiring or creating business units dedicated to drilling fluids and production chemicals.
One of the most significant challenges Will sees for oilfield chemical providers going forward is quality and consistency of product.
“A major supplier of oil field chemicals must provide the international oil companies with products and services of high-quality on a consistent basis, and increasingly, it must do so on a worldwide basis,” Will said.
“This business is all about customer service, so it is personnel–intensive, and its products are personalized to meet specific customer needs. Service companies typically have 400 to 600 products, many of which have evolved over time as specialized formulations for a particular application or customer.
“While the service companies would prefer to simplify their product lines, doing so is difficult, because their customers are resistant to accepting substitutes for products that work well.”
In addition, Will noted, the services element of the business requires these companies not only to provide the reliable chemical formulations needed, but also to provide high-tech testing equipment to ensure quality and safety, and when required, to provide rapid response teams to address any problems encountered by the field operator.
“This makes it harder for smaller companies to compete in the oilfield chemicals space, due to the scope and size needed to meet customer requirements globally,” Will said.
For more information on the report, contact susan.wright@ihs.com.
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