Shale development and rising oil prices are pushing up domestic demand for oilfield chemicals at a rate of more than 8% a year, according to new research by The Freedonia Group Inc. By 2015 the U.S. market for chemicals should reach $13.6 billion, the Cleveland-based industry analyst said.

"After a period of weakness beginning in late 2008 and lasting through much of 2009, the market returned to form, thanks to rising oil prices and ongoing efforts to develop shale formations in different parts of the U.S.," said the study's authors. "Although [natural] gas prices remain low by historical standards (and much lower than oil prices in relative terms), the expectation of eventual price increases -- and the immense promise of shale gas production -- has motivated producers to step up investments in high levels of oilfield drilling and stimulation activities to maximize output from existing wells and develop new resources."

Expanding oil and gas output from "increasingly mature" resources will require higher levels of industry activity, which in turn will drive demand for oilfield chemicals, the study found.

The market potential for raw materials used to formulate oilfield chemical products is based mostly on the outlook for the finished products in which they are used, noted the authors.

"As a result, raw materials such as natural gums, polymers, acids and surfactants used in stimulation fluids are likely to register the fastest growth, driven by continued expansion of well stimulation technologies, fueled in part by sustained growth in shale development. In contrast, gases and other products used in enhanced oil recovery materials are likely to post less impressive, though still considerable, advances."

According to the study, stimulation chemicals used in hydraulic fracturing (fracking) will be the fastest growing segment among major product categories. Demand will be driven "by the need to maximize oil output."

Shale development growth will continue to "boost demand for chemicals and other raw materials used in stimulation fluids. Already, shale gas development has reshaped the oilfield chemical product mix as suppliers adopt drilling and fracturing fluids better suited for use in such applications as sophisticated multi-stage fracturing operations and drilling in environmentally sensitive areas."

Despite the optimistic outlook, chemicals demand could be restrained, the authors warned. "Perhaps foremost among them is the opposition -- strong in some parts of the U.S. -- to the use of hydraulic fracturing," said the study.

"Much of this opposition is rooted in concerns about the potential effects of the process on groundwater supplies. Although properly fractured, cemented and completed wells pose no harm to groundwater supplies (which generally lie hundreds or thousands of feet closer to the surface than oil and gas pay zones), oilfield mishaps such as the Deepwater Horizon incident in 2010 and an April 2011 fluids spill during a frack job in Pennsylvania have led to distrust of the industry's position that such activities are entirely safe and create no threat to the environment. Such concerns may restrict growth in upstream oil and gas activity in the longer term, but to date the momentum has favored exploration and production activity."

The U.S. oilfield chemicals market is led by Schlumberger Ltd., Baker Hughes Inc. and Halliburton Co., which together accounted for around 40% of domestic sales in 2010, the study noted. Other leading suppliers include Weatherford International, Newpark Resources and Nalco. Leading raw materials supplies include Ashland, Dow Chemical, Lafarge, M-I SWACO (a Schlumberger unit) and Solvay.