Published December 2014, Revised June 2015
The world market for oil field chemicals is projected to grow at about 4.0% annually to 2019. The 2019 forecast would be higher, were it not for the recent declines in oil pricing and further consumption declines forecast for 2015 and 2016—in particular for shale oil applications—prior to higher growth rates during 2017–19.
The most significant change over the past few 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.
The following pie chart shows world consumption of oil field chemicals and services:
Lower oil prices will likely not have a major impact on the production segment’s sales of chemicals, but likely will 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.
Hydraulic fracturing continues globally, but primarily in North America. In 2014, total chemical consumption related to fracking accounted for over 93% of the global fracturing chemicals market. While hydraulic fracking grew during 2011–14, with lowered crude oil pricing, it is estimated that consumption will decline by 15–20% in 2015, growing at around 5% in 2016 before increasing at around 15% annually during 2017, 2018, and 2019.
The way mineral rights are licensed and exploited in the United States gives a greater economic incentive for landowners to encourage activity on their land than is the case in many other parts of the world. While some of these factors are present in other countries with significant shale gas and oil deposits, it is probable that exploitation will not be as rapid as has been the case in North America.
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 growth is forecast to continue over the next five years. Although there are questions about political instability in some countries, such as Libya and Sudan, no single country dominates chemical usage in the region. 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.
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.
The Asia Pacific market will show good growth in the drilling, cementing, and stimulation markets. Production chemicals will have a similar growth rate because much new development has involved gas fields. China remains a relatively closed market except for technologically difficult offshore fields.
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 field 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.
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 had acquired M-I SWACO, a major drilling fluids company.