Driven in large part by the rapid expansion of shale oil and gas drilling and production in North America, the world market for oilfield specialty chemicals at the service company level reached $25 billion in 2014, up from nearly $16 billion in 2010, but oil-price declines have dampened the demand outlook for oilfield chemicals for the 2015 to 2019 period, according to a new global market study from IHS (NYSE: IHS).
The IHS Chemical 2015 Specialty Chemicals Update Report – Oil Field Chemicals covers historical developments and future projections for supply, demand, capacity, and trade in the global oilfield chemicals markets for 2015 to 2019, and projects that sales of oilfield chemicals will grow annually at a rate of approximately 4% to more than $30 billion in 2019, based on volume growth and price changes in effect at the end of 2014.
“During the past five years, we saw unprecedented market growth for oilfield chemicals, which has been driven by the rapid development and production of shale oil and gas resources in North America,” said Stefan Schlag, director of inorganic chemicals and mineral and mining products at IHS Chemical, and lead author of the report. “We expect demand for these chemicals to continue to grow, but at a much slower rate than in the previous period.”
Oilfield chemicals typically fall under three categories: drilling fluids, cementing, and stimulation, and also 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. And, finally, 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.
Said Schlag, “IHS doesn’t expect lower oil prices to have a major impact on sales of chemicals to the production segment, but we expect lower prices will likely have more of an impact on sales of chemicals for drilling, stimulation, and completion activities. The primary reason for this is that actual oil production volumes are expected to continue to increase – in line with expected continued growth of world crude oil demand. However, lower crude oil prices have slowed exploration drilling and the drilling of new boreholes, especially for more complex unconventional and deepwater oil projects. These projects typically have higher production costs, and are, in many cases, not economic at current oil prices.”
Despite the year-end slowdown in exploration and production (E&P) activity driven by the oil price slide, hydraulic fracturing continued globally in 2014, but primarily in North America. In 2014, total chemical consumption related to hydraulic fracturing was valued at nearly $8.6 billion, with the US and Canada accounting for the lion’s share of demand at $8 billion, or approximately 94% of total world consumption of stimulant chemicals.
Latin America was a distant second in terms of demand for oilfield chemicals, accounting for slightly less than 9% of global demand or $2.2 billion of sales. The Middle East followed with 8% of global oilfield chemical demand or $2 billion in sales. The CIS followed, with 6.5% of global demand for these chemicals or $1.6 billion in sales.
“It may seem counterintuitive, but markets for oil production chemicals show almost no correlation with regional, raw oil production volumes,” Schlag said. “In fact, rather than production volumes, it is the complexity of the oil production process itself (conventional, deep water, or unconventional) – that has a large impact on the demand for oilfield chemicals.”
The global oilfield chemicals industry is dominated by three oilfield services companies (Schlumberger, Halliburton, and Baker Hughes), and these companies are becoming larger through acquisitions, which will allow them to offer a wider range of oilfield services such as exploration, drilling, design, and engineering. Despite the expected near-term market volatility for specialty chemicals, the oilfield services sector saw significant merger and acquisition activity at the end of 2014, with Halliburton announcing the largest deal – a $35 billion acquisition of Baker Hughes in November. That deal is expected to close in the second half of 2015, pending US government approval.
Prior to the acquisition announcement, Schlumberger led the oilfield services sector, including oilfield chemicals sales, with total 2014 sales exceeding $48 billion, or more than 46% of the total oilfield services market, followed by Halliburton at slightly more than $32 billion in sales in 2014, or nearly 31% of market share. Baker Hughes followed in third position at nearly $24 billion in 2014 sales, or almost 23% of the market. Based on 2014 market share figures, a combined Halliburton and Baker Hughes would dominate the oilfield services market with slightly less than 54% of global market share.