Oil country tubular goods (OCTG) – including drill pipe, production tubing and well casing – expenditure has been hit hard by the downturn – Douglas-Westwood’s (DW) World Oilfield Equipment Market Forecast shows 2016 spending will amount to just 42% of the 2014 peak. This is largely due to the significant reduction in drilling activity onshore as well as price deflation globally as a result of dropping demand and falling steel prices.
Well casing has seen the largest reduction in annual spending of all OCTG types since 2014 – falling 62% from US$17.0 billion to US$6.4 billion. The driving force for this has been widespread Capex cuts and bankruptcies amongst US shale operators leading to a 47% and 50% reduction in the number of new wells being drilled in the country in 2015 and 2016, respectively. Elsewhere, Asian well casing spending will fall 34% relative to 2014 as a result of CNPC cutting back operations in China’s mature onshore oilfields. Going forward, all regions will show positive trends as the drilling increases and commodity prices recover. The strongest growth will be seen in North America at 29% year-on-year as rising oil prices bring lower-quality shale acreage back into the economic window. Eastern Europe & FSU will recover well from the downturn as a large number of wells are drilled in Russia to satisfy the demands of LNG plants and Chinese gas exports.
Drill pipe and production tubing have seen smaller decreases in spending– declining 46% and 49% over 2014-2016 respectively. This is due to prevalent aftermarket spending for both OCTG types. Drill pipe is regularly replaced and serviced offshore to negate the risk of a failure that could result in large amounts of non-productive time. Production tubing is often replaced during workover operations to prevent fluid exchange with surrounding rock formations and maintain pressure in the well. This is particularly the case in densely-populated areas where leaks could contaminate aquifers. Onshore, drill pipe and production tubing expenditure will begin to recover from 2017 as drilling activity increases once more – reaching 64% and 75% of the 2014 peak by the end of the decade.
Offshore, however, will show a flat profile for the remainder of the decade as oil prices fail to recover sufficiently to allow drilling to return to pre-downturn levels.
Whilst the OCTG market will show strong growth to 2020 at 11% year-on-year, DW expects expenditure to recover to just 65% of pre-downturn levels. This partial recovery is due to drilling activity being unlikely to return to pre-downturn levels until well into next decade as well as steel prices taking several years to recover.
Adapted from a press release by Louise Mulhall
Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/26072016/octg-market-to-remain-supressed-into-2020s/