Aggregate U.S. pressure pumping supply exceeded demand late last year and in the first three months of 2012 capacity utilization averaged 93.4%, a big turnaround in a market that had been undersupplied for two years, according to a new analysis. The shift is challenging oilfield service operators, which already were noting the squeeze in quarterly conference calls.

PacWest Consulting Partners, a consultancy that monitors hydraulic fracturing (fracking) capacity in the United States, noted the reversal and its impact on the domestic market in the latest PumpingIQ report issued on Thursday. The analysis covers frack capacity in the Anadarko, Denver-Julesburg and Permian basins, as well as the Bakken, Barnett, Eagle Ford, Fayetteville, Haynesville, Marcellus and Utica shales. Not included is the Piceance/Uinta/Green River formations.

“This is a major shift for the U.S. pressure pumping market, which had been severely undersupplied for two years,” said PacWest principal Christopher Robart. “Prices broadly reflect the new market dynamic, with prices falling in all but a few oily plays in the first quarter of 2012.”

The Permian Basin “is the only play where pressure pumping prices are still increasing at this time, but those increases are very moderate,” Robart said, based on “on-the-ground sources.”

Baker Hughes Inc. CEO Martin Craighead in April said the company had seen a “tidal wave” shift by producers to the Permian, which had led to an increase in the cost for oilfield services (see Shale Daily, April 25).

PacWest expects domestic frack capacity utilization to bottom out at 87% by the end of June before climbing to 89% in 4Q2012 based of an anticipated increase in the aggregate U.S. rig count as producers continue to chase oil and liquids.

“The supply of hydraulic fracturing capacity has lagged behind demand for the last two years, but PacWest expects capacity to increase by 16.5% over 2012 to 15.5 million hydraulic hp (hhp), or 510 fracturing fleets, at year-end,” said Robart. “At the end of 1Q2012 PacWest estimates that there were 483 fracturing fleets and 14.4 million hhp of capacity operating in the U.S.”

Because of depressed natural gas prices, exploration and production companies “have aggressively shifted development spend from gas to oil/liquids plays, with pressure pumpers following,” said PacWest. The firm expects fracking capacity in natural gas plays to decrease by 22%, or 1.1 million hhp between 3Q2011 and 4Q2012, while in oil/liquids plays, frack capacity over the same period is forecast to jump by 52%, or 3 million hhp.

“The migration in development activity from gas to oil/liquids plays caused a temporary oversupply in gas plays and a temporary undersupply in oil/liquids, although much of the supply/demand imbalance has been mitigated by now,” according to PacWest. “Many hydraulic fracturing fleets that were based in gas plays are temporarily undeployed or idled until new customers can be located. PacWest estimates that as much as 1.1 million hhp of frack capacity was idle/undeployed at the end of the 1Q2012 but forecasts that figure will decrease to 0.7 million hhp by end-of-year.”

The decreased capacity utilization rates “are driving down prices for fracturing services across the U.S.,” PacWest said. “Prices in key gas plays have been falling for the last year but it was not until the last six months that prices started falling in oil/liquids plays. Prices in the Eagle Ford started falling in the first quarter of 2012 and prices have even begun to soften in the Bakken. The Permian basin is the only region where prices are still increasing although price increases have moderated over the last six months.”

In April Schlumberger Ltd. CEO Paal Kibsgaard said fracking services had been under pressure in North America’s gas and liquids basins “as excess capacity is moved around, but we expect to see lower pricing reaching all basins in the coming quarters” (see Shale Daily, April 24). Halliburton Co. also plans to defer some pressure pumping deliveries in North America planned for this year to deal with “inefficiencies” (see Shale Daily, April 20).

“Supply chain constraints that have held back the pressure pumping market for the last year have moderated significantly over the last six months,” according to PacWest. “Frack sand and proppant supply is now largely available, although transportation/logistics continues to cause intermittent problems. A general lack of experienced oilfield labor continues to pose problems, particularly in the Bakken and Permian Basin.

“Guar gum prices have skyrocketed over the last year, primarily due to high oilfield demand. Based on recent work in India to assess the guar supply market, PacWest estimates that there is a high probability of intermittent guar shortages over the next six months.”

India accounts for more than 70% of the global production of guar gum, a thickening agent in fracking fluids, according to the Multi Commodity Exchange of India. The seed also is grown in the United States and Pakistan. Vikas WSP, India’s only publicly traded guar gum producer, earlier in May said it would invest US$36 million to build two plants to more than double guar gum capacity based on surging U.S. demand.