Many will see 2009 as year of
significant change in business practices towards a more prudent
and green way of operating. For many industries it was one of
the worst economic downturns since the USA’s Great
Depression beginning in 1929. Predictions of the start of the
end for hydrocarbon and particularly oil driven sectors were
rife.
Yet while the price of oil
reflected tough times, the pace of global exploration moved up
a gear to the highest level since 2000.
Prosperous areas of exploration for
oil included: the Gulf of Mexico with BP finding what could
turn out to be the world’s largest ever deposit, The
Tiber; the oil fields of southern Iraq; an extension to
Iran’s Sousangerd field, and continuing large scale
exploration in Brazil.
Queuing for minerals: despite a short
term demand slump, minerals are set
to continue its supply to oil and gas
drilling fluids for a number of years yet.
Courtesy Shell
As for gas, offshore Nigerian
deposits could begin to realise their potential as
Russia’s Gazprom moves in, China’s offshore activity
continues to surge and Spain’s Repsol has claimed to have
found Venezuela’s biggest ever gas field. In addition,
Middle East gas appears to be on the rise with the Western
Libya Gas Project, one of the regions leading developments.
Slowly but surely, the oil and gas
industry is moving away from traditional deposits as they close
in on the end of their economic lifespans. This was most
recently typified by the fact that exploration in the once
world leading source of hydrocarbons, the North Sea, fell by
35% in 2009.
“The North Sea is in decline
as a source of hydrocarbons and although there are companies
out prospecting for more, Britain has no real incentives to
encourage them and slow down the decline,” said Graham
Sadler, the managing director of Deloitte’s Petroleum
Services Group.
What Sadler’s comments touch
on is the host of factors that affect oil and gas exploration
and production regions it is not just about simple supply
and demand economics.
This, therefore, makes predicting
future trends of oil and gas drilling, and where minerals will
be applied in the muds used, a hazardous task.
Minerals in muds
The term drilling muds (or drilling
fluids1) is almost as broad a term as
industrial minerals in that both are used to describe
a whole host of products that are each a business of their own.
For what is a critical element to the successful extraction of
oil and gas, attempting to understand the basics of the subject
can be challenging to say the least.
Drilling fluids can take the form
of many products from weighting agents to sealants,
viscosifiers to lubricants. Baroid Industrial Drilling
Products, one of the leading manufacturers of fluids and part
of oil field service giant, Halliburton, has 12 sub-categories
of products while MI Swaco publishes a list of products which
fall into nearly to 20 categories.
The oil and gas industry relies on
drilling fluids in simple terms they cannot drill without
them and drilling fluids rely on the supply of key
minerals such as barytes, bentonite, calcium carbonate, iron
oxide and potash. For many of these minerals there are no
synthetic substitutes, which underlines the importance of the
role they play in one of the biggest industries on the
planet.
Drilling fluids fall into three
main categories: water-based, oil based and synthetic (gas,
foam, synthetic oils). Out of the three, water-based fluids
consume the most minerals; fluids such as colloidal clay and
polymer are products derived from clays such as bentonite,
sepiolite and attapulgite.
While the categories of drilling
fluids at first appear to be clearly defined, their application
is not. Each fluid offers a primary attribute while well
operators use a combination of fluids at various stages of the
drilling cycle to manage and control extraction of the
hydrocarbons.
“Most drilling fluids today
continue to be water based for economic and environmental
concerns, ie. bentonite/polymer muds with various additives to
inhibit geochemical reaction with the geology. This would be
regardless of sea depth,” Joe Barker operations leader,
Bariod Industrial Drilling Products (Baroid IDP), part of oil
services giant Halliburton, told IM.
He added: “Oil based and
synthetic muds tend to be used only in highly deviated,
horizontal or high temperature wells where water based muds are
inadequate.”
For example, bentonite based
additives come in pellet or granular form and are added to the
borehole to seal cracks and fissures that may occur on the
sides of the borehole and leak oil or gas.
Its primary function is as a
sealant and for this sodium bentonite, which is also known as
swelling or Wyoming bentonite, is used; it is the same mineral
used for common cat litter for the same purpose.
A key secondary function of
bentonite is as a viscosifier of liquid, usually seawater, in
the well its thixotropic properties help control fluid
extraction. Viscosifiers can also be an additive made from
attapulgite clay; the product controls the thickness of salt
water which improves the yield return and allows rheological
stability in the well.
Viscosifiers are particularly
useful for the operator in locations with highly saline
water.
Drilling is the second biggest
market for bentonite accounting for 20% of a global production
total of 11-12m. tpa, while attapulgite is more specialised
with a global output of around 3.5m. tpa.
Barytes is also a major drilling
mineral with between 80-85% of the 8.5m. tpa global production
destined for use in the drilling sector. Barytes specific
gravity (SG) of 4.1 to 4.2 and above makes it an ideal mineral
to use as a weighting drilling fluid.
A weighting agent is a critical
additive to an operational well as it counteracts the force of
the oil and gas when it is extracted preventing an explosive
release and fluid loss.
Barytes is not the only weighting
mineral used others include sodium chloride (salt, 2.16SG),
calcium carbonate (2.7-2.9SG) and iron oxide (>4.85SG).
The range of drilling fluids also
extends to polymer breakers which are made from chemicals based
on lithium chloride. Zinc oxide is used in a product called a
scavenger which lowers the dissolved oxygen
content.
Well operators also use minerals in
smaller amounts to fine tune factors such as pH levels and
neutralise acidic gases. Caustic potash is used in small
amounts to control pH levels. MI Swaco’s guidelines is to
use 0.25lb/bbl for 9.0 pH or 0.5lb/bbl to attain 10.0 pH in the
well.
Proppants or propping agents are
also major drilling additives. These angular, high strength
minerals fracturing (frac) sand, bauxite and man-made
ceramics are flushed down into the reservoir and settle in
the cracks and fissures, propping them open and significantly
aiding the flow of oil or gas into the borehole (see IM
November 2009: Gas fuels proppants prospects, for an in-depth
feature on this).
Caustic soda (sodium hydroxide)
precipitates magnesium and calcium into the well controlling
the pH levels and neutralising gases such as carbon dioxide and
hydrogen sulphide that could negatively impact yields or
quality of product. Zinc carbonate is also used in a similar
capacity.
But selecting a drilling fluid is
not a cut and dry situation and depends on more than just the
right minerals for the right application.
“Drilling fluid selection is
based on a number of factors including availability, cost,
environmental conditions, customs restrictions on importation
of materials, regulatory controls,” Alan Spackman, vice
president of offshore technical and regulatory affairs,
International Drilling Association of Drilling Contractors
(IDAC) told IM.
“The selection is made for a
specific drilling program, and often for a specific section of
the well for a drilling program. [The location of the rigs] is
governed not only by the location of the undeveloped resource,
but on both international and national political
decisions,” he added.
Drilling
trends
Trends in the oil and gas industry
are not as straight forward as one may assume and are
controlled by many factors.
The necessity of drilling muds to
the oil and gas industry will remain, but the types of muds and
grades of mineral used will undoubtedly flex with the location
and type of drilling activity.
Perhaps the most high profile
example of flexing with the changes is with regard to barytes
which has been subject to a heated debate over suitable grades
in recent years.
Until 2009, American Petroleum
Institute (API) specifications, implemented in the 1980s,
decided that barytes should be 4.2SG. Mineral supply
constraints, however, have resulted in grades of 4.1SG barytes
being introduced to the market, particularly in North America.
But it is possible this lower SG grade could become a victim of
changing drilling patterns.
The 4.1SG barytes is more suitable
for shallower oil drilling, such as the land rigs that operate
in Nevada, USA, but is deemed by some as too light to operate
in deep sea wells.
“[4.1SG and 4.2SG] are both OK
but in the more demanding Gulf of Mexico offshore market there
is resistance to accept fluid systems weighted with 4.1 barytes
since achieving very high mud weights that are sometimes needed
to balance down-hole pressures (say > 15 PPG mud),”
explained John Newcaster, vice president, supply chain at Baker
Hughes Drilling Fluids
But as the industry increases the
development of more challenging locations such as deep sea and
sources with awkward access such as unconventional shale, and
with the industry is more reluctant to use 4.1SG, demand could
be impacted.
Shale gas sources have been tipped
to revolutionise the European industry with the potential to
unlock hundreds of trillions of cubic feet of new supply and is
a potentially huge market for drilling fluids.
In the last year and a half,
ExxonMobil, ConocoPhillips, Shell and OMV have purchased land
across the EU in a rush for tracts of shale gas land with
Poland, Hungary, Austria, Sweden and France drawing the most
interest according to industry publication Petroleum
Economist.
Newcaster explained to
IM: “Even though unconventional shale
drilling and deepwater are the fastest growing segments, the
vast majority are still conventional wells. Deep water tends to
drive barytes consumption, but it’s impossible to say that
it will make a significant change in demand for any industrial
mineral in the fluids sector.”
Minerals specifications are decided
by the API and barytes is not the only regulated mineral.
Others include bentonite, attapulgite, sepiolite and
haematite.
In recent years, API specifications
have been seen as out of date and out of kilter with the
reality of mineral supply although the authority has gone
some way to changing this by reviewing barytes (IM April
2009: Barytes weight loss: official).
“I expect that there should
not be a change in the geologic targets as shale is a usual
pre-requisite for an oil or gas cap rock, with sands being
reservoirs, in most cases. I have no indication that this will
change,” said Joe Barker of Bariod IDP.
Oil and gas still on
green
As the green revolution engulfs the
world it is easy to use the oil industry as a symbol for
everything that is its antithesis.
With increasing excitement and
expectation surrounding new technologies which are tipped to
replace oil reliant vehicles such as hybrid and electric cars
and nuclear and renewable energy the days are surely numbered
for oil. Not quite.
The world runs on oil and weaning
it off such a fixated addiction is not an overnight thing, it
is not even a decade long trend. New finds continue to buoy the
industry and keep the reserves sceptics at bay. The lack of
ready-to-go replacement technologies, let alone the cost and
logistical challenges of implementing these on a global scale,
will ensure the long term future of the industry.
Oil producers are at threat from
their own economics however. The world’s leading producers
do not believe they can put the significant new finds into
production at a price lower than $60/bbl.
“The appetite for opening new
frontiers when prices were low in the 1990s was very small.
Today, the biggest discovery of all is technology,” said
Paolo Scaroni, the chief executive of French oil group,
Total.
With oil presently standing at
$80/bbl, producers stand well within the economic viability
range. But price volatility over the past year has resulted in
the value of the barrel plummeting to $32 and it is entirely
feasible this can happen again in such an economically unstable
world.
Doomsayers have been predicting oil’s demise for some
time leading to talk of commodities key to emerging technology
such as lithium and rare earths being crowned the “new
oil”. But for now and for the foreseeable future, oil is
still the only oil in town and its appetite for drilling fluid
minerals will continue to be robust.
1For the
purposes of this article the terms drilling fluids, drilling
muds and drilling additives are all reference to the same item,
a product whether liquid or solid added to an
operational drilling well to aid and control extraction of
oil/gas and maintain the borehole structure.
Drilling minerals at a
glance
Drilling fluids by value
($)
Source: Baker Hughes
Barytes
Total tonnages: 8.5m. tpa
Primary drilling
usage: It is barytes weight or specific gravity (SG)
which makes it ideal for use as an oil and gas drilling
medium.
A specific gravity of 4.2SG and
above has traditionally been the American Petroleum Institute
(API) standard for much of the industry. Shortages of this
grade in North America has resulted in the lowering of the
standard to 4.1 SG of which there are reserves in Nevada
supplying, in the main, the Rocky Mountains drilling
industry.
For further reading see IM April 2009: Barytes weight loss:
official
Bentonite
Total tonnages
USA: 4.82m.
World total
tonnages: 11-12m.
Primary drilling usage: Sodium (swelling)
bentonite is, along with barytes, the major mineral used in oil
and gas drilling muds. Bentonite’s ability to swell and
block cavities helps form an impervious coating on the drill
well’s walls, essentially sealing them and preventing
leakage of valuable oil and gas. It is also a viscosifier in
water based muds (IM July 2008: Bentonite bound for
success).
Potash
World total tonnages: 57-61.2m.
Primary drilling
use: to control pH levels and create solid free
brines
*Includes oil and gas drilling, deice agent, metal
electroplating, water softening
Graphite
World production:
1-1.2m. tpa
Primary drilling use: The only natural
solid lubricant in the world, graphite is added to lubricate
the drill bit and pipes that may be stuck.
Mica*
* Dry ground mica
World production:
370,000-400,000 tonnes
Primary drilling use: loss circulation
prevention in the well; used in all three mud types
Other minerals used
Ground calcium carbonate: weighting agent, formation
bridging, and well completions
Hematite:
weighting agent
Ilmenite:
weighting agent
Soda ash: pH
control primarily in water based muds
Attapulgite clay:
sealant and viscosifier
Sepiolite clay:
sealant and viscosifier
Frac sand:
proppant
Bauxite: proppant
Tomorrow’s oil and gas producing
regions
A look at where new oil and gas
production could come from and where in the world drilling
fluid minerals will be applied
1.
Deposit: Tiber, Gulf of Mexico, USA
Resource: Oil
Owner: BP
Comments: Tiber is shaping to be the biggest
ever oil find, reigniting the debate over availability of oil
reserves. The deposit’s accessible reserves are expected
to top that of the Forties field in the North Sea which is
presently the world’s biggest ever exploited field,
supplying 4,000m. bbl.
2.
Deposit: Mariscal Sucre, Venezuela
Resources: Gas
Owner: Open for offers
Comments: an auction for one of the
world’s biggest gas resources, 14.7 trillion cubic feet,
closed mid-January without any private offers. Russia’s
Gazprom and Italy’s Eni are favourites to take advantage
of the expected improved conditions
3.
Deposit: Guara, Santos Basin, Brazil
Resource: Oil
Owner: BG
Comments: The size of Guara is expected to
rival that of BP’s Tiber find. Present estimations have
reserves at around 2,000m. barrels.
4.
Deposit: Nigeria (offshore)
Resource: Gas/Oil
Owner: Various
Comments: Russia’s Gazprom has begun to
secure its position in this region which has suffered from lack
of investment in the past.
5.
Deposit: Western Libya Gas Project, Libya
Resources: Gas
Owner: Eni, Libya’s National Oil Corp.
(50:50)
Comments: traditionally an oil producer, Libya
is looking to boost gas production from 16,000m. to 31,000m.
cubic metres in the next 6 years.
6.
Deposit: Europe’s unconventional shale
Resource: Gas
Owner: Many including ExxonMobil,
ConocoPhillips, Shell and OMV
Comments: A rush for shale gas resources in
Europe is on with France, Hungary, Poland and Austria
attracting the most interest
7.
Deposit: Gro, Norway (offshore)
Resource: Gas
Owner: Royal Dutch Shell
Comments: Up to 100 billion cubic metres;
expected to be the biggest in 12 years
8.
Deposit: Basra, Iraq
Resource: Oil
Owner: ExxonMobil, Shell, BP, South Oil, China
National Petroleum, Iraqi government
Comments: A major step forward in the
development of Iraq’s oil reserves was achieved at the end
of 2009 with the awarding of contracts to ExxonMobil and Shell
to develop the 15,000m. barrel reserves of West Qurna and the
opening of the Rumala fields for South Oil, BP, and China
National Petroleum in the Basra governorate.
9.
Deposit: Sousangerd oilfield, Iran
Resource: Oil
Comments: In August 2009, Iran discovered an
additional 8,800m. barrels of oil in four new layers at its
Sousangerd oil field.
10.
Deposit: Vietnam
Resource: Gas/Oil
Owner: Various
Comment: Vietnam has opened up its country in
a hope to strike it big in oil and gas.
11.
Deposit: Bohai Bay, China (offshore)
Resource: Gas/Oil
Owner: Various
Comments: Four new wells started up in
2009
Cost anatomy of an oil well
$100m.
Costs that drilling deepwater wells can reach (note: the cost
of the well life, not the rig equipment)
<10%
Cost portion of drilling fluids on completing the well
4-5%
The cost portion of drilling fluids from the
exploration and production budget
30-50%
The percentage of exploration wells that strike oil