Oil well cement use facing multi-decade lows on plummeting well drilling activity

GREENWICH, Conn. - May 18, 2016 - PRLog -- Global API, API-equivalent and nonconforming oil well cement demand is down by more than 30 percent from the peak nine million ton volume reached in 2013 to low five million tons, including extenders. Based on the prevailing crude oil price outlook and associated activity in oil, gas and thermal well drilling, the demand for the specialty oil well cement is nonetheless expected to stabilize into the coming year and show modest recovery between 2015 and 2020, according to CW Research's study on "World Oil Well Cement Markets & Outlook".

"The oil industry is undergoing its worst contraction in decades, with crude demand growth decelerating on Chinese slowdown and global economic uncertainty. In 2016, crude prices have hit some of the lowest levels in 15 years, even though we have seen periodic mini-rallies, followed by reversals and more uncertainty. Consequently, well drilling activity and rig operations, particularly in North American shale fields, have come to a grinding halt as exploration and oil field service companies reduce expenses," says Robert Madeira, CW Group Managing Director and Head of Research.

CW Research's World Oil Well Cement Markets & Outlook expects the drop in rig counts to continue until oil prices stabilize. The two major drivers for oil well cement demand are the number of wells drilled and the average depth of these wells, which the report details by region and their relative cement consumption rates. The decline in shale drilling in the United States and the slowdown in Chinese demand are among the most important drivers behind the decline in oil well cement consumption; the two countries accounted for 69 percent of total wells drilled and 63 percent of total oil well cement consumption in 2015. CW Research expects drilling to improve moderately over 3-5 years.

"Looking at the oil well cement demand estimate models, we model the outlook based on multiple macro-economic factors, detailing usage segments, well types, and regions so that we can distill out factors that differentiate activity in different markets" says Prashant Singh, CW Group Associate Director.

This oil well cement decline is most severe in North America wherein planned capital expenditure in 2016 is expected to be 27 percent below 2015, and 52 percent below 2014, according to CW Research's World Oil Well Cement Markets & Outlook. After North America, the Central and South American markets were the worst affected, seeing year-on-year declines of 38 and 33 percent, respectively.

At the other end of the spectrum, drilling activities in Russia were the least affected among global producers due to a multitude of reasons including the low cost of production, currency devaluation, and exclusion of gas industry from sanctions imposed by EU. Notably, Russia is expected to maintain its capital expenditure on new oil discoveries and exploration as the oil and gas sector continues to account for a major portion of government revenues.

Demand for oil well cement fared better in some regions including Sub-Saharan Africa, MENA, and the CIS, which saw estimated declines of less than 20 percent in 2015 from peak demand in 2013 and 2014.

The downward growth revision by institutions like the IMF and the World Bank has had a negative effect on markets, and concerns of further oversupply by Iran and other countries are causing increased volatility in prices. Additionally, OPEC decisions on production quotas will likely determine the crude price outlook, with a direct impact on the oil well cement market. Considering these drivers, the CW Research expectation for crude prices is to average around USD 34.1 per barrel in 2016 and thereby gradually increase to an estimated USD 53 per barrel by 2020. As a result, the global outlook for oil well cement consumption remains biased towards negative as is not expected to retrace peak consumption levels of 2013 and 2014 over the forecast period due to the supply glut situation in the global crude market and volatile price movement of crude.

The report addresses important market dynamics about API certified and non-certified oil well cements. Notably, CW Research analysts outline the regional API class preferences for cement, based on the depth and nature of the wells drilled. While API classes G and H (and equivalent national standards such as Russia's GOST) remain the dominant sub-products, some markets and applications use other classes and inputs for their cementing jobs. Innovation also continues in the space with cementing companies seeking to lower costs, with fly ash fining a more central role. The American Petroleum Institutes' initiative to explore possibility of introducing classes for new types of extenders is also underway; not only is expected to lead to new classes of oil well cement, but will help reduce the carbon footprint of the cement as well.

About the Report

The CW Research's World Oil Well Cement Markets & Outlook (http://www.cwgrp.com/index.php/research/research-products...) analyzes in detail developments in the world oil well cement market from a regional perspective with a focus on key markets. The report provides a forecast from 2016 to 2020 prepared with detailed and wide-ranging discussions with industry players.

The forecast provides worldwide oil well cement market outlook, regional market shares, demand, imports, exports and types of oil well cement used, as well as price trends. CW Research's report highlights detailed and specific demand by main types of oil well cement for key countries, and trends in the oil well segment. The World Oil Well Cement Markets & Outlook presents the role of extenders and onshore, offshore, and shale well counts with trajectory, depth, and well type to help ascertain oil well cement usage.

For more information: http://www.cwgrp.com/index.php/research/research-products/product/22-world-oil-well-cements-2020-2016-update