When most people think about Christmas trees, they imagine bright lights and delicate ornaments. But, in the oil and gas industry, a “Christmas tree” is a critical piece of equipment that can be difficult to assemble.
The device consists of a wide variety of pipes, valves, meters, sensors and hydraulic systems that control the flow of oil and gas out of wells. It is a complex assembly that contains hundreds of parts that must operate reliably under extremely harsh conditions.
Solar panels and wind turbines may be media darlings these days, but oil and natural gas are still our dominant energy sources and will remain so for the foreseeable future. Indeed, the never-ending quest for new sources of oil and gas has manufacturers of drilling, pumping and processing equipment running full-tilt.
According to a recent study conducted by the Freedonia Group Inc., global demand for oil-field equipment will rise 4 per-cent annually through 2016 to $109 billion. “Growth will be strongest in developing areas, where better infrastructure will benefit drilling activity,” says Elliott Woo, an analyst at the Freedonia Group. “New, more expensive techniques to drill for unconventional reserves, such as shale oil and oil sands, will also boost spending on oil-field equipment.”
However, there is currently a glut of oil and gas equipment, claims Chris Faulkner, CEO of Breitling Oil and Gas Corp., an independent exploration and production company. “The market is pretty competitive right now for the first time since the ‘shale gale’ began. A 3 percent increase in rigs drilling for oil was eclipsed by a larger decline in natural gas rigs in North America, where count is down 26 percent from the same period last year. [The industry is shifting] away from gas to oil in an effort to make the economics of drilling work.
“It takes far less fracking horsepower to crack open an oil-bearing formation than it does for natural gas zones,” Faulkner points out. “All of the horsepower and frack kits were built with natural gas fracking in mind. Now that we have switched focus to oil, there is a huge glut of that equipment on the market. This trend will continue in the near-term.”
As conventional oil reserves experience a production decline, more unconventional reserves will need to be tapped. Key targets include natural gas fields in Alaska and the Rocky Mountains, oil sand projects in Canada and offshore drilling in the Arctic region.
Another controversial and technically complex initiative involves deepwater drilling. According to a recent report by GBI Research, new offshore rigs are capable of drilling in water depths exceeding 5,000 feet. And, it will soon be possible to drill in water up to 12,000 feet deep.
The discovery of harder-to-reach oil and gas reserves has forced petrochemical engineers to develop new extraction techniques and increasingly complex drilling operations. For instance, shale reserves, such as the Bakken field in North Dakota and the Marcellus field in Pennsylvania, tend to be accessed through horizontal drilling techniques, which cost more per foot than traditional types of vertical drilling.
Hydraulic fracturing equipment is needed to extract shale oil. It includes high-pressure hydraulic pumps used to push fluids and proppant into a well formation, in addition to fuel tanks, structural brackets, hoses and mufflers. Well completion units typically use a 2,500-horsepower high-pressure pump equipped with a transmission, a radiator and a silencer to mitigate engine noise.
To reduce the impact of drilling on the environment, the oil and gas industry has embraced new technologies, such as multi-pad drilling, closed-loop fracking, water recycling and desalination of salt water for use in fracking.
According to Faulkner, the average drilling rig found anywhere in the world today is about 25 years old. “While this tech-nology may have been appropriate for extracting the easy-access oil that was right below the surface, as these reserves dry up companies are looking to drill in deeper water and harder-to-reach onshore reserves,” he points out. “This requires more complicated technology. The majority of the rigs we have in operation now will not fit the bill.
“Rig contractors and exploration companies worldwide are beginning to invest in new rigs,” claims Faulkner. “This spending has been met with high demand, as oil-field equipment companies are increasingly seeing record-level orders and backlogs for new and upgraded rigs.”
All that activity is good news for upstream oil and gas equipment manufacturers. In fact, several companies have invested in new production facilities to ramp up for new demand.