U.S. hydraulic fracturing (fracking) capacity utilization has fallen by almost one-third since January, and all of the major domestic plays are in a “negative frack pricing environment,” according to PacWest Consulting Partners.
In its latest PumpingIQ report, issued on Tuesday, PacWest analysts found that the gap between aggregate U.S. fracking supply and demand should hit a trough in the first three months of 2013. The firm monitors the global fracking market. According to a review by the strategist, U.S fracking capacity plunged on average 79% in 3Q2012 and is expected to hit a low of 73% in 1Q2013.
“A falling U.S. land rig count is driving a reduction in demand in hydraulic fracturing services, while frack capacity continues to increase, driving a net reduction in frac capacity utilization of 31% over the course of 2012,” said PacWest Principal Christopher Robart. “All key U.S. plays are now in a negative frack pricing environment. We forecast that in aggregate frack pricing in the US will decrease by 15% in 2012.”
In late May PacWest reported that aggregate U.S. pressure pumping supply exceeded demand beginning in late 2011, with utilization in 1Q2012 averaging 93.4%, which was a big turnaround in a market that had been undersupplied for two years (see Shale Daily, June 1).
However, the market environment for new oil and natural gas development “has changed considerably over the past six months, prompting a significant downward revision in U.S. land rig count forecasts for 2012 and 2013. Due to consistent rig count reductions expected through 2012, PacWest forecasts that hydraulic fracturing capacity utilization will continue to fall throughout the year, ending the year at 74%.”
The downward slide already is being seen by the largest North American service companies. A decline in domestic onshore natural gas activity in 3Q2012 slammed the three largest U.S. providers: Schlumberger Ltd., Halliburton Co., and Baker Hughes Inc. (see Shale Daily, Oct. 22; Oct. 18).
Small- and medium-size frack companies are continuing to take new equipment deliveries, PacWest said. Total U.S. capacity at the end of June was 14.9 million hydraulic horsepower (hhp), which translates into 499 fracking fleets. “At the end of 2012, PacWest forecasts that there will be 15.3 million hhp of capacity in the US, an increase of 18% from the end of 2011.”
Globally, frack capacity is forecast to hit 21 million hhp by the end of this year. By the end of 2017, global frack capacity is expected to jump 68% to 36.9 hhp. “Markets outside North America are expected to experience significant growth, increasing from 20% of global capacity to 41% of global capacity,” the firm said.
PacWest analysts said they recently visited more than 20 frack equipment manufacturers and service companies in China and reported booming business.
“Frack capacity in China has doubled over 2012, to nearly 1.4 million hhp on tight oil/gas demand,” the analysts said. More than four-fifths (83%) of the capacity was operated by service subsidiaries of national oil companies, with most of the capacity assembled by the two leading Chinese original equipment manufacturers.
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