Supply & Demand Dynamics
Demand for cementing services is directly driven by drilling, well intervention and plug & abandonment activities around the world. North America is the largest market for well cementing services, followed by Asia Pacific. The Middle East is one of the smallest segments, accounting for less than 5% of the market. Onshore cementing services represent more than 85% of the sub-category, although offshore cementing represents the largest growth area.
Primary cementing is in higher demand when compared to secondary cementing services. The boom of shale oil and gas drilling has had tremendous impact on demand for cementing services, due to the number of wells required to drill to develop such resources.
The Middle East will continue generating strong demand for cementing services due increasing activities in re-development and well intervention operations, due to the age of wells.
Although drilling rig activities is the closest indicator of the demand for cementing services, well total depth would require more cementing slurry. Hence, a combination of rig activities and well depth is the key demand indicators.
The supply of cementing services is composed of equipment, personnel, and materials. Materials, cement, and additives, represents the biggest supply risk and volatility. Global cement production has been dominated by China, accounting for more than 50% of the global output followed by India, USA, and Brazil. The Middle East's combined cement production capacity represents less than 5% of global capacity. Saudi Arabia and UAE are major producers of cement in the region. For the past several years, the capacity utilization of cement production has been less than 70%. Historically, global capacity has never reached full utilization. The highest utilization rate of 90% was achieved in 2008. It can be anticipated that break-even utilisation levels are circa 75% with producer gaining significant pricing power at 80% to 85% utilization.
Coupled with the demand for cementing services in the oil and gas industry, and the fact that more than 80% of global cement production is used by non-oil and gas industries, secure and stable supply oil well cement may become at risk for some.
When it comes to cement additives, more than 70% of cement additives used in the oil & gas industry is unique and not used by other industries. Hence, proprietary additives produced by major well-cementing companies are critical to well-cementing services, in particular, high H2S, HT/HP wells, and deep water. Yet, there is a number of chemical manufacturers who produce standard additives for the service companies and able to serve the marketplace outside their traditional customers (cementing companies).
Halliburton and Schlumberger are dominant market players, controlling more than 60% of the global well-cementing market. On average, both companies have an equal share of this segment. When it comes offshore, Halliburton has been historically a leader in shallow water applications, whereas Schlumberger has dominated the deepwater segment. There are a few smaller regional service companies, who would specialize in less critical jobs, where high-performing proprietary additives are not used.
In the Middle East, Halliburton is the dominant player, controlling almost half of the market, closely followed by Schlumberger. Baker Hughes and other niche service providers make up the rest and represent less than 20% of the segment.