Price and market trends: US hydrochloric acid market may rebound with rig count

Drilling rig operators have slowed their retreat from oil and natural gas fields, according to data from US oilfield tool company Baker Hughes, a trend that could have implications for the hydrochloric acid (HCl) market.

The number of rigs currently operating in US fields fell by nine, to 431 during the week ended 22 April, according to the Baker Hughes Rig Count Overview and Summary.

That’s down to fewer than one-quarter of the 1,930 rigs that were operating in late October 2014, the peak of US and Canadian drilling activity during that most recent energy spree.

Oil prices were still above $80/bbl at the time, but already on their downward trend that ran through 2015.

The decline of nine rigs, a much slower rate than the 30/week that were fleeing in February, caps several weeks of mostly single-digit declines.

The past 17 months averaged 20 rigs/week absenting the energy field. “Operators are starting to look at rebounding [crude oil] prices and have quit cutting,” a hydrochloric acid (HCl) seller said earlier this month.

“The ones that are leaving now are the ones that were cut for second-quarter budgets,” the seller said

HCL AND FRACKING

HCl and other chemicals got a demand boost in about 2008 as hydraulic fracturing became the method of choice for extracting oil and natural gas from “tight” formations of shale.

HCl is used after a bore hole is drilled to dissolve excess limestone and clear the path for the hydraulic fracturing, pounding fluid pressure to crack the shale.

Demand rose sharply to where, by some estimates, the oilfield commanded 30% of HCl demand in the US.

But falling crude prices demolished that sector as the expensive process of breaking up the shale became unprofitable when crude fell below $50/bbl. Prices for acid, likewise, have retreated back from a mid-point of $240/wet ton in the first week of 2015 to a mid-point of about $32.50/wet ton today. Also unprofitable have been the number of on-purpose acid burners built to supply the new market. Many of them have been directed to other purposes or shut.

The producers of the acid as a by-product of the manufacture of other chemicals have an even tougher time.

“We are all losing money,” said the sales manager for a producer of HCl as a by-product earlier in April. Most participants in the chemical markets that serve oilfield service companies are optimistic that crude prices will rebound enough by the third quarter to restore drillers’ confidence and stabilise exploration activity.

That price is likely $55/bbl or higher, most market participants agree. Almost all US production would be profitable at above $65/bbl for crude, including the more difficult and expensive shale fields in North Dakota and Pennsylvania, market participants said.

Still, production companies may be slow to return to the most difficult fields until oil prices are steadier at above that floor.

The list of chemicals used in the hydraulic fracturing process is long. Besides HCl, it also includes acetic acid, sulphuric acid, caustic soda, ethylene glycol and isopropanol.