Electrical Submersible Pumps (ESP) for oil wells are one of the most reliable and efficient ways to lift fluids to the surface, both oil and water. As the name suggests, it is submerged into the reservoir fluids and pushes the fluid to the surface. An ESP pump can be designed to handle fluids of up to 60,000 b/d and cover various well's conditions and production profiles, and generally a low-cost solution for high volumes of crude lifting.
Generally, the ESP pump is installed close to perforation areas, in the production tubing string. The working principle of the ESP pump is very similar to any other pump - a multistage centrifugal pump driven by an electric motor provides a high-speed rotation of impellers that in turn create centrifugal forces to lift the fluids up.
Although Rod / Beam pumping is the most widely used method, ESP systems are the fastest growing technology, when it comes to penetration rates. Application of ESP is widely used in low carbonate reservoirs, low sand oilfields highly deviated wells, and able to function in a wide range of production rates and depths. ESP systems can be used in combination with Gas Lift technology (if gas is available) to provide redundancy. Modern technologies allow using the rig-less deployment of ESP, thus eliminating the requirements of a drilling rig.
ESP systems are very susceptible to failures caused by 1) Sand 2) Electric spike 3) Frequent on/off of the pumps/motors. On average, ESP pumps have higher failure rates, followed by motors and cables.
Risks & Opportunities
Risks & Opportunities
- Effective utilization of ESP systems requires a very detailed analysis, as almost every well profile makes a difference. Deviation and lateral profile, pressure and temperature, gas-to-liquid ratio, facilities footprint and many more, should be part of the comprehensive assessment
- Dual ESP Systems (primary and back up in the same well) provide one of the best solutions in failure-prone areas minimizing downtime and work-over costs, by having redundancy
- Technology advancement in Rig-less ESP (Coiled Tubing or Wire-line deployed (WRESP)), allows retrieving ESP without having a drilling rig
- Progress in ESP systems for high Gas-to-liquid (GLR) ratio wells overcomes a number of weak areas of ESP systems, as artificial lift method in high GLR wells.
Supply & Demand Dynamics
Supply & Demand Dynamics
- The long term demand is stable – focus on ramping up and increase in recovery rates vs. new exploration
- Short-term demand is Low, due to reduced drilling and well shut-ins
- Many operators may switch to maintenance mode and try to deplete existing inventory
- Deferred demand expected to come back in Q1 2021
- 4 to 6 months’ time lag is required to have a significant impact on the supply side in this category, when demand shrinks, due to backlogs of orders
More than 75% of wells worldwide use the artificial lift. Depletion rate and maturing of an oilfield is the major driver for using artificial lift technologies. North America holds almost half of the market and will continue to be the dominant place. While conventional production requires an artificial lift at a later stage during production, unconventional fields use artificial lift very early, due to the fast decline in production. According to Frost & Sullivan, by 2025 92% of the wells will require some form of artificial lift.
Globally, ESP pumps and systems represent around 30% of the artificial lift, but more than 50% of non-rod pumping. The biggest market for ESP systems in North America and Russia. ESP systems are the fastest growing technology when it comes to penetration rates.
A number of demand drivers present in the Middle East that and globally would provide growth in this segment.
- Middle East
As several mature fields across the Middle East come off the natural flow and require ESPs to maintain demand, so there is a considerable volume and future growth potential for artificial lift solutions
Redevelopment phases in major oilfields (including offshore), hence utilization of artificial lift technologies is expected
- Over 5,000 wells are already using ESP or Gas Lift
- Switch to the maintenance of existing wells, instead of drilling new wells, in a low oil price environment.
The supply of ESP pumps and equipment is lead by Schlumberger and Baker Hughes, followed by Halliburton, Borets, Novomet, Weatherford and DOS Canada. There are a number of smaller suppliers and manufacturers globally.
Key suppliers and manufacturers of ESP pumps and equipment in the market are as below. Schlumberger and Baker Hughes are the most prominent players.
- Baker Hughes
- DOS Canada
- Valiant Artificial Lift
Cost & Price Analysis
Cost & Price Analysis
- Prices for equipment are expected to stay where they are or may demonstrate a marginal decrease for lower-tier and standard equipment, as a result of reduced demand
- Suppliers under pressure to contain costs. Lower capacity utilization and an increase in prices for iron ore, copper and nickel (for exotic applications) will be a challenge for suppliers to contain/reduce costs, in particular exotics applications and cables.
Over the last several years, the demand for ESP systems was fairly stable with moderate growth. However, the oil price downturn reduced global requirements for ESP, due to a reduction in activities, which put pressure on services companies and manufacturers to reduce prices. Yet, the correlation between ESP pumps prices and oil prices may not be linear since ESP systems consist of a large number of electrical and instrumentation parts, which is used in other industries, such as construction, electronics, aviation, military, medical, agriculture.
This is the category where the top-down pricing policy is widely used. One of the key elements the service provider would consider when pricing the ESP system is lost production opportunities and cost of ESP change for operators. The operator is willing to pay more for the ESP system if it guarantees certain performance levels. E.g. changing a $ 500k ESP system requires an average of 3-8 days of lost production and daily rig rates. This could be translated into millions of dollars of costs for operators.
Onwards maintenance of ESP systems is another large area of opportunity for service providers, due to switching costs. Depending on the operator requirements for ESPs, pricing models may be geared towards onward operations & maintenance of ESP systems, whereby the cost to switch is so high, that changing supplier is uneconomical.
The ESP system consists of Surface Equipment and Downhole ESP assembly. The majority of the components are electrical, instrumentation and steel. Depending on the design and application, costs of the ESP system may vary by 4 times e.g. chrome vs. stainless steel down-hole assembly. Below is an estimated cost structure of a typical ESP system.
Down-hole temperature is another factor that affects the costs of electrical components down-hole, e.g. cabling, sensors and seals, that can withstand high temperature or any other soar service environment.
In addition, an important factor that drives the cost of the ESP system is the design of the system based on the production ranges and initial assumptions. On average, ESP pumps and systems are designed to handle between 2,000-8,000 B/D that makes ESP service providers be competitive and refrain from spending large R&D costs to “tailor-made” an ESP system. The moment the ESP system becomes unique, R&D share in the system's price may go as high as 45%.
- Manufacturing & assembly costs- the majority of the components and parts used in assembling the ESP systems are electrical, instrumentation and steel. Most of the items are heavily used by other industries; hence ESP manufacturers may have limited control of costs.
- Research & development costs - for most ESP systems that are designed for standard applications, R&D costs spread over a longer period and larger markets. For any “tailor-made” systems, R&D costs are expected to go up significantly.
Total Cost of Ownership
Total Cost of Ownership
The procurement of ESP systems is one of the most challenging categories due to subsurface uncertainty and risks. While most of the risks can be assessed and covered, this extensive risk management results in significant costs to operators. Therefore, it is of utmost importance for operators to carefully consider the full ESP system life and plan design, installation, and operation. In addition, most of the premature failures of ESP systems can be avoided by remote monitoring and intervention.
Having a solid contractual relationship is vital. A contract shall clearly define roles and responsibilities, boundaries of the ESP system performance and its out-of-specification operation and its consequences must be agreed in advance, in order to avoid disputes and claims. Proving the most accurate data and expected reservoir behavior during the ESP design stage is crucial and beneficial to both operators and service providers.
- The total cost model shall include the costs of:
- Operation & maintenance, including energy costs
- Change-out / Workover
- Down time
- Allow service providers to offer pricing based on “power-by-hour”, i.e. agree a guaranteed period of ESP run life with risk/reward mechanism that would provide an incentive to service companies to design the optimum ESP system. Under these arrangements, all monitoring and maintenance will be done by the service company, for a monthly fee, that may be complemented with an upfront lump sum.
- Being a bottleneck category, the risk is high. Manage the risk carefully, ensure maximum value and work on alternatives.
- Monitor suppliers and their moves in the market.