INSIGHT: Fracking drives up US demand for oilfield chemicals

21 February 2012 17:10  [Source: ICIS news]

By Sheena Martin

HOUSTON (ICIS)--US demand for oilfield chemicals will grow to $13.6bn (€10.3bn) in 2015, largely as a result of increased exploration and drilling in shale regions, according to a fourth-quarter 2011 study.

US research company Freedonia Group reported demand for oilfield chemicals, which includes the fluids to stimulate production in hydraulic fracturing (or “fracking”), will rise by 8.3%/year to 2015 on an increase in drilling activity, particularly in Texas and North Dakota. Texas is the home of the Eagle Ford Shale formation, and North Dakota’s crude production has grown exponentially because of the liquids-rich Barnett Shale formation.

“It is a growing industry,” said Julie Adams, partner at US law firm Sedgwick. “We’re looking at 25% or better of our national energy coming from shale gas, and anything with shale gas is using hydraulic fracturing.”

The attorney works at Sedgwick on energy issues and with clients in the energy business.

The Freedonia Group reported in “Oilfield Chemicals to 2015” that $9.1bn was spent on oilfield chemicals in 2010. Of that total, $4.2bn, or 46%, was spent on stimulation chemicals used to open new flow channels in rock surrounding production wells. The chemicals also create “artificial lift” to help bring gas and liquids to the surface.

The study expects that $13.6bn will be spent on oilfield chemicals in 2015, with $6.7bn, or nearly 50% of the total, comprising stimulation chemicals.

This is a considerable increase compared with the $6.3bn spent on oilfield chemicals in 2005. Stimulation chemicals that year made up $2.5bn, or nearly 40% of total oilfield chemical demand, the firm’s report said.

Freedonia said stimulation chemicals “are considered to be an indispensible component of developing the immense reserves of oil and gas held in shale formations”, using the fracking method.

The average hydraulic fracturing job uses about 5m gallons (19m litres) of water and proppant materials, which include sand and ceramics. The chemical mix comprises, on average, 0.5% of this mix, or 2,500 gallons per well.

US oilfield services company Baker Hughes reported 1,272 US oil rigs in service for the week ending 17 February, as drilling has been bolstered by shale gas activities. The count for horizontal rigs – which have a design typically used in the production of shale – stood at 1,163.

“In terms of chemicals, there is a huge amount of chemicals in drilling operations,” Adams said. “Think about all the chemicals required for every stage of oil and gas production.”

Several chemicals comprise the raw materials for finished products used in fracking. Natural gums, polymers, acids and surfactants (which lower the surface tension between a liquid and a solid) used in well stimulation fluids are likely to register the fastest demand because of the expansion of well-stimulation technologies and sustained growth in shale development, the Freedonia study said.

Baker Hughes and two other US oilfield services companies, Schlumberger and Halliburton, lead the oilfield chemical market, accounting for about 40% of US sales in 2010, the study said.

Baker Hughes’ fourth-quarter 2011 conference call said its customers reported a planned increase in capital spending for 2012 on hydraulic fracturing, but did not elaborate with specific figures.

Halliburton declined to comment on chemical demand for fracking and well stimulation. Baker Hughes and Schlumberger did not respond to enquiries at the time of writing.

Traders in the respective chemical markets could offer no information on the specific demand from the hydraulic fracturing business.

US law firm Reed Smith’s Michael Joy, an attorney with an academic background in geology and shale basin development, said the growth in demand for oilfield chemicals has probably gone largely unnoticed because of the timing of the shale boom. Reed Smith handles a number of domestic and global energy accounts.

“Production of shale is a relatively new phenomenon that began to spread in 2008, and, as it happens, was timed with a major recession,” he said.

Overall demand for chemicals for traditional uses was heading down at the time, while demand from the oil and gas production sector gave the industry a boost. The result was a seemingly flat chemical demand, he said.

Since global chemical demand is not significantly higher than usual, Joy added, any impact from oilfield chemical demand on the markets is not immediately obvious.

($1 = €0.76)

Read Paul Hodges’ Chemicals and the Economy blog

By: Sheena Martin
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