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Specialty Chemicals Update Program

Oil Field Chemicals

Published December 2014


The most significant change in the petrochemical industry over the past five years has been the rapid exploitation of shale gas and oil reserves in North America. Recent advances in both horizontal drilling and hydraulic fracturing have meant reserves that were previously uneconomic to develop have been rapidly exploited. A number of factors came together to ensure that this was the case. Rig and equipment availability and better access to the high volumes of water required for fracking is not as big an issue as in some countries. Sales of oil field chemicals were originally projected to reach $25 billion in 2019, but recent declines in oil prices and further declines forecast for 2015 and 2016 are expected to slow oil field activity on a short-term basis, and in particular shale oil applications.

Lower oil prices will likely not have a major impact on the production segment’s sales of chemicals, but will likely have more impact on drilling, stimulation and completion activities. Depending on the application and company costs, lower oil pricing will have an impact on long-term planning in the industry. Company costs have been reported at around $75 per barrel. Hydraulic fracking has continued globally, but primarily in North America.

The following pie chart shows world consumption of oil field chemicals and services for 2014:

World Consumption of Oil Field Chemicals

Rapid growth in unconventional oil and gas activity in North America has resulted in increases in the volume of chemicals used and, based on the projected growth in this area, the volumes consumed in the future will represent a significant portion of the market. Growth in Latin America, particularly in Brazil, has been significant although political instability has resulted in limited activity in Venezuela. Africa has seen significant growth across the continent and this is forecast to continue over the next five years.

Most of Western Europe’s oil field production is in the North Sea, where the aging of wells has been accompanied by problems with corrosion and scale. In addition, European environmental concerns have led to restrictions or outright bans on many chemicals used previously, including alkylphenol-formaldehyde resin–based demulsifiers and olefin-based synthetic fluids. Alternative products or techniques that are generally more expensive have now been substituted. Many major international oil companies, which have higher overhead costs, have divested older and more mature fields to smaller operators that can operate the fields at lower cost. Growth in the drilling, cementing and stimulation sectors will be low in this area but the production chemical sector will continue to grow strongly.

Although there are questions about political instability in some countries, such as Libya and Sudan, no single country dominates chemical usage in the Middle East/Africa. In the Middle East, the country with the greatest growth potential over the next four years is Iraq, although political factors will continue to have a major impact. Based on the significant investment taking place to both rejuvenate old fields and explore for new reserves, Iraq will become an increasingly important market for oil field chemicals. Many of the new fields present technological challenges, such as drilling in very deep water or working in high-temperature, high-pressure and corrosive conditions. These wells require larger volumes of more expensive chemicals than most conventional wells. Thus, oil field chemical consumption will increase not only in volume but also in value as more expensive chemicals will be needed in some cases.

The Asia Pacific market will show strong growth in the drilling, cementing and stimulation markets. Production chemicals will have a slower growth rate because much new development has involved gas fields. China remains a relatively closed market except for technologically difficult offshore fields. While many service companies have a significant presence in the Commonwealth of Independent States (CIS), Schlumberger has based one of its five research centers in Moscow. Information on the markets in many of these countries is still somewhat sparse.

The global oil field chemical industry is dominated by large corporations, and these corporations are becoming larger through acquisitions, allowing themselves to offer a wider range of oil field services such as exploration, drilling, design and engineering. Halliburton recently announced plans to acquire Baker Hughes, which is active in drilling chemicals through Baker Hughes Drilling Fluids and production chemicals through Baker Petrolite. Baker Hughes itself had previously acquired BJ Services, which was active in cementing and stimulation. Schlumberger is also a major player in cementing/stimulation services, and acquired M-I SWACO, a major drilling fluids company.

Since the global economic downturn at the end of 2008 and into 2009, the profitability of oil field service companies has improved dramatically. However, with declining oil prices at the end of 2014, profitability is projected to decline, with further consolidation expected. Because the major oil chemical suppliers are part of the large integrated oil field service companies, it is difficult to identify the specific financial performance of the chemical operations. However, the oil field chemicals market has historically been highly competitive, with continuous price pressures from the operators and price cutting by smaller, often local, suppliers in areas such as Latin America, Africa and the Middle East. To improve their competitive position, the larger corporations have gone for acquisitions and the formation of integrated service organizations. This consolidation has also been driven by the desire of certain operating companies to have single-source suppliers and also to award management contracts for a full range of services and chemicals.

Table of Contents

Summary
Introduction and Overview of the oil and NATURAL GAS Industry
Economic Overview and Crude Oil Prices
Energy Sources
Oil and Natural Gas Production
Rig Activity Statistics by Region
Field Development Activity
Overview of the Oil Field Chemical Business
Introduction
Market Size
Structure of the Industry
Operating Characteristics
Research and Development
Manufacturing
Marketing
Personnel
Profitability and Cost Structure
Government Regulations
Environmental Issues for Oil Field Chemicals
North America
Western Europe
REACH
China
Cooperation Between Industry and Regulators
Trends and Opportunities
Critical Factors for Success
Oil Field Chemical Products and Functions
Drilling Fluids
Water-Based Muds
Oil-Based Muds
Synthetic-Based Muds
Major Constituents of Drilling Muds
Workover and Completion Fluids
Cementing and Stimulation Chemicals
Cementing Chemicals
Stimulation Chemicals
Oil Production Chemicals
Important Production Chemical Consumption Factors
Downhole Issues
Surface Handling of Oil and Gas
Transportation of Oil and Gas
Interrelationship of Production Chemistry and Chemical Treatments
Unconventional Oil and Gas Production Systems
Enhanced Oil Recovery Chemicals
Alkali Surfactant Polymer Flooding
Low-Salinity Water Injection
Water Shut-Off Chemicals
Carbon Dioxide Flooding
Microbial IOR
Oil Field Chemical Markets
Chemical Components Used in the World Oil Field Chemicals Sector
Western Hemisphere
Well Activity
North America
Latin America
Drilling, Workover and Completion Fluids
Consumption and markets
North America
Latin America
Market participants
North America
Latin America
Future trends and strategic issues
Cementing and Stimulation Chemicals
Consumption and markets
North America
Latin America
Market participants
North America
Latin America
Future trends and strategic issues
Oil Production Chemicals
Production of crude oil
North America
Latin America
Consumption and markets
North America
Latin America
Market participants
North America
Latin America
Future trends and strategic issues
Europe, CIS, Africa and the Middle East
Well Activity
Europe
CIS
Africa and the Middle East
Drilling, Workover and Completion Fluids
Consumption and markets
Europe
CIS
Africa
Middle East
Market participants
Europe
Africa
Middle East
Future trends and strategic issues
Cementing and Stimulation Chemicals
Consumption and markets
Europe
CIS
Africa and the Middle East
Market participants
Europe
CIS, Africa and the Middle East
Future trends and strategic issues
Oil Production Chemicals
Production of crude oil
Europe
CIS
Africa and the Middle East
Consumption and markets
Europe
CIS
Africa
Middle East
Market participants
Europe
CIS
Africa
Middle East
Future trends and strategic issues
Asia Pacific
Well Activity
China
Southeast Asia and Oceania
Drilling, Workover and Completion Fluids
Consumption and markets
China
Southeast Asia and Oceania
Market participants
Cementing and Stimulation Chemicals
Consumption and markets
China
Southeast Asia and Oceania
Market participants
Oil Production Chemicals
Oil and natural gas production
China
Southeast Asia and Oceania
Consumption and markets
China
Southeast Asia and Oceania
Market participants
China
Southeast Asia and Oceania
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