Future Could Hold Rise In Global Frack Capacity

North America is expected to continue leading growth in global hydraulic fracturing capacity, with China gaining ground after the country surpassed Canada as the world’s second largest frack market last year.

PacWest Consulting Partners’ latest forecast on hydraulic fracturing services and drilling and completion activity shows global frack capacity increasing by 16.2 million hydraulic horsepower (MMhhp), representing an increase of 65%, between 2013 and 2018. Accounting for the largest chunk of the increase is North America at 55%.

“2014 is likely to be a strong year for frack pump manufacturers. We expect about 2.8 MMhhp of total pumps to be deployed into the market on a global basis,” Christopher Robart, a partner with the firm, said during a conference call June 4. “We expect the North American market to account for roughly 50% of the growth of global pump newbuilds. China and the rest of the world will account for roughly 20% each.”

China continues to push forward toward developing its technically recoverable shale resources, estimated by the U.S. Energy Information Administration to be about 33 Tcm (1,115 Tcf), to meet growing energy needs. Faced with technical, water, infrastructure, logistical and high costs challenges, the country has been falling short of its Ministry of Land Resources’ goal to produce 6.4 Bcm (230 Bcf) of shale gas by year-end 2015 and 59 Bcm (2,100 Bcf) by 2020.

However, lately, “The Chinese market has been undergoing a fairly rapid buildup in frack capacity. But they have a lot of excess frack capacity now,” Robart said. “So we believe as demand for fracturing services increases in the next two to three years in the Chinese market, we will see these numbers start to ramp up again.”

Meanwhile, demand for frack services continues to rise in North America. PacWest forecasts demand in the U.S. will increase 10% in 2014 and 11% in Canada. Further growth is anticipated in 2015 and 2016.

“Demand increases are extremely strong in the market,” Robart said. “Efficiencies are still a fairly material story in the market.”

Efficiencies across the drilling and completions value chain continue to erode realized frack demand but at a slower rate than previous years, according to PacWest.

“Multiwell pad drilling, smart scheduling, 24-hour operations and other practices have softened frack demand growth since 2012 and will continue to do so into 2014,” Robart said. “In particular, the Permian Basin should see greater efficiency impacts as more companies shift to horizontal well and multiwell pads.”

In other frack market trends, PacWest expects North America to see robust activity when it comes to the total number of horizontal fracked stages—a 17% increase in 2014, a 13% increase in 2015 and an 11% increase in 2016. “There is a little bit of variance in individual regions and plays,” Robart said. “But putting Canada and the U.S. together, this is our view of activity: Essentially, it is robust. The number of frack stages in North America is going to continue to grow, driven by more horizontal wells but also increased lateral length, which results in more stages per well.”

In the U.S., the number of horizontal fracked stages is expected to increase 18% with a 10% increase in the number of horizontal wells fracked this year. Growth is expected from the Denver-Julesburg, Permian and Utica basins as well as the Bakken, Eagle Ford and Marcellus. “Even in the Haynesville, we have an increase in the total number of wells being fracked,” Robart said.

Similarly, Canada is experiencing an increase in drilling and completion activity, driven by growth in the Duvernay and Montney plays that could push frack demand to 1.84 MMhhp in 2014, representing an 11% increase from 2013. For 2014, PacWest estimates a roughly 14% jump in the number of horizontal frack stages in Canada.

“D&C activity is strong with strong market growth expected through 2016 in the U.S. land and Canadian markets. A key point is we expect about 1.1 million hhp in net capacity additions to the North American market in 2014,” Robart said. “The service providers and the equipment manufacturers have ramped up quickly over the last three to four months.… The additions are generally weighted toward the second half of 2014.”

Smaller Tier 2 and Tier 3 pumpers reacted quickly to the improving outlook for frack services and will account for nearly two-thirds of the net additions expected this year, according to PacWest.

However, the firm anticipates moderate pricing increases in 2014 in key growth plays, primarily cost recovery-driven pricing increases for items such as proppants, particularly sand.

Contact the author, Velda Addison, at vaddison@hartenergy.com.