New Openings for Oil and Gas Chemicals
Cheap Oil Gives Scope to Chemical Companies to Help Cut Production Costs
The outlook for producers of chemicals used in the exploration and production of oil and gas has not been promising after the crash in oil prices in the second half of 2014. However, cheap oil could offer opportunities for suppliers of these chemicals as operators of oil and gas rigs across the world seek ways to adjust their oil production costs to the lower prices for crude.
“We need to be getting more out of less,” Robert Frimpong, managing director, Wintershall Noordzee, Netherlands, part of BASF’s oil and gas Wintershall operation, told a BASF Science Symposium in Ludwigshafen in March.
The 50% drop in oil prices from mid-2014 to early 2015 did not have an immediate effect on the output of oil. In fact some producers of oilfield chemicals seemed to be hoping they could continue to achieve the high growth in sales of recent years.
Small Oil Decline
Saudi Arabia’s oil production was predicted in March to be heading for an average 9.8 million b/d in 2015 against 9.6 million b/d last year.
In the US, whose oil and gas sector has been expected to be hit the hardest by the oil price collapse, output started to decline slightly only in late March.
However, capital expenditure has been going down in high-cost sectors like onshore shale gas and tight oil in North America, deepwater offshore reservoirs around the world, and areas of depleted reserves such as the North Sea.
Shell announced earlier in the year that it would cut capital spending over the next three years by around $15 billion.
Schlumberger, one of the world’s leading oil and gas services companies, has estimated that in 2015 capex in oil and gas exploration and production (E&P) will fall by an overall 10% to 15%.
Shale Capex Cuts
Expenditure will drop sharply in onshore oil production in the US, especially in its shale sector, following a doubling of expenditure to $125 billion in the six years to 2014.
“The Eagle Ford Shale in the US has seen capex cuts by operators while reductions are also being seen in other major plays,” said Paul Gould, global head of marketing at Clariant’s Texas-based oil services business. “As a result of capex cuts, analysts estimate that domestic onshore oil and gas activity (in the US) may be reduced by 40% compared to the level in 2014.”
However, in regions like the Middle East, capex could actually increase as Arab producers remain intent on keeping their global market share rather than reducing their production capacity.
Across much of the world, investment in projects that require the application of expensive enhanced-oil-recovery (EOR) techniques will inevitably be cut back. Unfortunately for chemical companies, EOR, which is used in oil or gas reservoirs deep under the seabed or trapped in tight rock formations, has a big demand for chemicals.
Providing Chemical Solutions
Nonetheless there will be a lot of scope for chemical producers able to provide solutions that cut costs, particularly those of existing, less expensive projects. Enough oil still has to be produced to meet growth in global oil consumption of around 2% to 3% annually.
“There will be a strong focus on reducing cost per barrel,” Paal Kibsgaard, Schlumberger’s chief executive, told an energy conference in New Orleans in March. “(This will result in) increasing production from shallow water and conventional land fields, as more investments are likely directed towards these resources types in the short term to meet the ongoing growth in demand.”
The priority for many producers will be to raise the productivity of individual existing wells that have the potential for high total output as a percentage of the total oil embedded in the rocks. This could mean pushing the output from an average of around 40% per well to 60% or more.
“What is needed are chemical and other technologies which optimize the levels of production in current wells,” said one oil executive. “This could mean the application of EOR or other techniques. With wells whose infrastructure has already been installed, EOR technologies become more economical.”
Some of the companies with major oil and gas chemicals businesses seem confident that they can meet the challenges posed by cheap oil.
Clariant, No. 3 in the global oil services market for chemicals, is predicting 6%-7% annual increases in sales after achieving a double-digit sales growth in 2014 in its Oil & Mining Services unit. Most of the business’ sales have been in oil and gas with a large proportion stemming from innovations.
“With the low price of oil, Clariant has focused efforts on improving productivity through innovation, without generating additional capex investment,” Gould said. “We partner with our customers to analyze declined production curves, identify the root causes and develop safe and sustainable solutions utilizing (our own) production optimization system.”
Kemira, another top supplier of oil and gas chemicals in North America and the Middle East, is also optimistic that it can at least maintain sales levels after oil and mining revenues jumped by 23% last year.
For rig operators, ensuring a smooth flow of oil and gas to the wellhead and then onto the processing facilities is a key factor in raising productivity. Hydrocarbon fluids in well pipelines will usually contain a mixture of crude oil, natural gas, water and additives and materials, some of which have been used as an aid in the early stages of production but can inhibit flow nearer the wellhead.
Sand, for example, is applied as a fracture proppant in hydraulic fracking of shale gas and oil. But within pipelines it can cause severe erosion and even the failure of a whole piping system.
Other factors hampering flow include the length of the pipeline, extreme temperatures, and formations of hydrocarbon deposits such as hydrates, waxes, paraffins and asphaltenes.
Clariant markets a variety of treatments for removing and preventing asphaltene and paraffin deposits and for breaking up emulsions that have formed in a pipeline. The collection also includes a drag reducer, which increases the amount of fluid being transported.
The company is planning to launch a treatment soon for preventing the formation of iron sulphide (FeS) scale in mature water-filter systems and injector wells.
“(The product) adds a novel booster to an existing technology, reducing FeS scale control spend by over 30%,” Gould said. “Lower injection-well failure rates (during tests) resulted in an increase in overall injection volumes, (which) led to an increased oil production.”
Kemira recorded a 40% increase in revenue in the Americas last year mainly due to the success of its polyacrylamide polymers as flow aids for reducing friction. The company has a 20% share of the North American polyacrylamide oil and gas market. It is also the world’s second-largest dry and emulsion polyacrylamide producer.
Its medium-term objective is for enhanced oil recovery to account for nearly half of its predicted polyacrylamide sales of €4.5 billion in 2020 against around a fifth in 2013 with the rest used in drilling and stimulation. This will require a fourfold increase in sales of polyacrylamides for EOR in seven years.
BASF’s recent combining of its water, oilfield and mining businesses into a single unit has strengthened its position in the polyacrylamide segment.
“As all three businesses include parts of the polyacrylamide value chain, our operations, including those in North America, can now be jointly managed, and customers will benefit from proximity, market intelligence and a specific business focus,” a BASF spokesperson said.
The company has also been developing a glyoxal dialdehyde for cross-linking polymers to improve their viscosity as fracturing fluids so that they can infiltrate sediment pore to release crude.
Applications of polymers and other chemicals for flow assurance purposes will benefit from an increase in the development and application of monitoring and modeling of the use of chemicals in oil and gas exploration and production.
Modeling Real-Time Data
Computational fluid dynamics (CFD), an aspect of fluid mechanics, are now providing algorithms, often based on the modeling of large amounts of real-time data, which is improving the efficiency of flow assurance polymers and other chemicals. Research with the help of CFD has demonstrated ways of raising the efficiency of viscoelastic polymers like hydrolyzed polyacrylamide (HPAM) in displacing oil from rock fractures.
Studies by the Center for Petroleum and Geosystems Engineering (CPGE) at the University of Texas have shown how CFD modeling can determine how the polymers can be formulated to apply sufficient pressure on oil droplets to remove them. Those at the center, who reckon that viscoelastic polymers can already increase oil recovery by 20%, believe they can be applied to billions of barrels of oil that are currently unrecoverable.
Researchers in the oil sector are also continuing their work on the application of new biochemicals and biological compounds in oil and gas production despite their tendency to be more expensive than mineral-oil-based equivalents.
BASF, which last year started producing bioacrylamide at Suffolk, Virginia, has jointly developed with its oil and gas subsidiary Wintershall a fungus-derived polymer thickening agent called Schizophyllan. The biopolymer, which is now being tested by Wintershall in the field, raises the viscosity of water 25 times to make it more effective as an oil displacement agent. At a time when environmental regulations on use of contaminants in oil and gas production are becoming stricter across the world, Schizophyllan has the advantage of being absolutely eco-friendly.
“The first indications in the test field are that the biopolymer could have a positive impact on crude oil production,” said Burkhard Ernst, Wintershall’s general project manager.
When judging the commercial viability of new bioproducts such as Schizophyllan, a delicate balance has to be found between cost effectiveness and environmental compatibility. While oil prices remain low, an innovation’s cost is likely what will make it a success.
Chemical Market Reporter
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