by Jaime Kammerzell | Rigzone Contributor
Tuesday, December 20, 2011
There is a growing shortage of barite supply, which has the oil and gas drilling industry looking for alternatives. Barite, the mineralogical name for barium sulfate, is used primarily in oil and gas drilling, but also is used as non-toxic filler, extender or weighting agent in plastics, paints and rubber, and as a shield around nuclear power plants. It also has medical uses such as blocking x-ray and gamma-ray emissions, and a pharmaceutical grade barite is used for barium milkshakes for intestinal x-rays.
To understand the barite market today, Brian O’Connell, Senior Category Manager of Mined Products, Baroid Supply Chain Group of Halliburton, explained that “the cost of barite over the past 10 years has quadrupled, in the last 5 years it has tripled, and over the past 2 years it has doubled.”
In addition to the cost increase, a decrease in quality related to metals and contaminants and a decrease in availability of 4.2 g/cu cm, which has historically been the API specification, are contributing to the current supply issues.
Most barite comes from China, which was responsible for 51 percent of the global supply in 2010. India had a 14 percent share of the barite market followed by the U.S. with 9 percent, Morocco with 7 percent and the rest of the world with 19 percent, according to the Barytes Association. Mined barite in 2010 totaled 7 million tons.
“China is the major barite source and leads the market,” O’Connell said.
China’s mining industry is undergoing a safety overhaul as many accidents and deaths in non-oil and gas related mining industries have prompted the government to enforce stricter regulations comparable to U.S. regulations. With these new regulations comes additional expense that smaller mines can’t meet. Thus, the supply burden has fallen on the larger mines.
However, in some cases, the local and regional Chinese authorities have reduced production from the larger mines.
“Up until about 2 1/2 years ago in Xiangzhou County, otherwise known as Elephant County, in Guangxi province, the Chinese were producing 1.2 million tons of barite per year. This year, the volume has fallen to 300,000-350,000 tons, which is a reduction of almost 1 million tons out of China,” O’Connell explained. “With global barite production of 7 million tons in 2010, a 1 million ton reduction is a big hit to the market.”
To add to the cost, as miners produce more and more barite, they have to dig deeper and further away from export ports. Recent weather-related problems like flooding, droughts and earthquakes not only impacted barite mining, but also transportation to these export ports.
O’Connell also points to the U.S. dollar/Chinese Yuan exchange rate, which has seen a 25 percent change since 2005, as a source of rising barite costs.
According to O’Connell, the high level of worldwide drilling activity correlates to an increase in barite demand. Peak demand and a reduction of barite coming out of China are driving the price and quality issue. “With this kind of imbalance, the scale tips in favor of sellers,” O’Connell said.
India’s barite market also is impacting the global barite market. India is the second largest producer of barite in the world. However, the country only has one major source of barite and the government owns it. The government entity that manages the mine, APMDC, holds two tenders every three years. The first tender calls for bids to mine the barite, and the lowest qualified bid wins the business. The second tender calls for bids for the barite that comes out of the mine. This goes to the highest qualified bidder.
The latest tender in 3Q 2011 resulted in a dramatic overnight price increase of more than 70 percent on a freight on board (FOB) Chennai basis.
The United States produced about 9 percent of the world production in 2010 of barite and imports much of its demand. As major world-wide buyers, Baroid and other fluid service companies typically ship in large lot sizes — 60,000 tons in one shipment — from China to the U.S. Gulf Coast. But Chinese traders are having increasing difficulties accumulating that much material at one time, O’Connell explained, and as a result, lower quality material is making its way into cargoes to fill out vessels, resulting in inconsistent material quality.
Back in 2006, a major barite producer with Nevada mining operations converted to a lower grade of barite, 4.1, to extend their U.S. reserve base and reduce their reliance on imports. According to O’Connell, Baroid immediately followed, and the other two barite producers in Nevada followed soon after.
The Baroid mine in Dunphy, NV
The 4.2 and 4.1 barite grades from U.S. sources have basically the same types of impurities. All four of the Nevada producers sold the lower grade product prior to API approval with general customer acceptance. At the same time that this grade was being used in the field, the four major fluid service companies encouraged API to add the lower grade to the approved products list, which has been done.
“We are trying to get operators to stop using material that has a higher density than what they really need. As an industry, we’ve been pretty successful,” O’Connell explained.
O’Connell indicated that the trend toward 4.1 barite is spreading globally and is helping to reduce pressure on miners to dig deeper for of 4.2 barite.
Regardless, the current supply is so tight, fluid service companies are considering alternative materials or even lighter weight barite than 4.1.
“We’ve looked at hematite and calcium carbonate, but each has characteristics not suitable for weighting of mud like barite, which is why we are looking into lighter barite instead of alternatives,” O’Connell said.
Source – RIGZONE
The world’s largest oil-field services company is preparing for the boom in shale gas and oil development to spread beyond North America in the coming years, likely heating up in 2013.
Poland is already moving quickly to exploit gas reserves using horizontal drilling and hydraulic fracturing technologies. Many more promising basins have been located in Latin America and the Eastern Hemisphere, and drillers and well completion companies will probably see a major growth in international business related to shale extraction from 2013 and into 2014, a Halliburton executive told industry peers at an analyst event.
“Things are moving quickly, probably a little more quickly than we originally anticipated,” said Tim Probert, president of Halliburton’s strategy and corporate development division. The evolving situation beyond the United States and Canada, he said, promises a “robust outlook for the oil service industry.”
In the past year, Halliburton has discovered “a fairly sizable population” of shale basins and other unconventional oil and gas reserves that could be tapped using new and improving technologies, Probert said at a two-day event sponsored by the investment firm Jefferies.
Halliburton technology teams have been dispatched to do assessments in the Middle East, Latin America, Asia and Europe. The results they are reporting are raising eyebrows with regard to the potential for international business growth.
A total of 150 separate basins have been analyzed so far, Probert noted, and 60 have been assessed in detail. And although market and regulatory conditions will make many of those basins infeasible or impractical for oil and gas development, many more will eventually to opened up to exploration and exploitation, Halliburton predicts.
A more international operating environment will also probably force the industry to adapt new technologies and techniques for hydraulic fracturing, or “fracking,” that cause less concern among environmentalists and regulators, Probert added.
Halliburton is working on techniques that employ “clean” fracking fluids that use chemicals commonly found in the food-processing industry, he said. The company is investing millions of dollars in research in the hopes of creating the “frack of the future,” more environmentally friendly and less controversial fracking techniques, Probert said.
Halliburton also sees growing interest in the Middle East and other major historic oil patches to employ other enhanced extraction technologies aside from fracturing, to arrest future declining output from mature oil fields.
The company maintains that Organization of Petroleum Exporting Countries] producers, in particular, are not investing enough in existing fields. That trend, the company said, will reverse as pressure builds in those nations to keep government revenues from oil and gas production flowing.
The company also sees business in the offshore sector perking up in the coming years. Many new rigs are seen coming online beyond the Gulf of Mexico. East Africa is an especially promising market, Probert said, adding that his company is moving to build the infrastructure in that region that will be necessary to support a robust offshore oil and gas industry there.
“We are more enthusiastic today than we were two quarters ago,” Probert said.
Source: E&E News. E&E News is published by Environment & Energy Publishing. For more news on energy and the environment, visit http://www.eenews.net/
- Halliburton Benefits As Europe Looks For Energy Security (blogs.forbes.com)
- Halliburton CEO: “Phenomenal” shale opportunities outside North America (gcaptain.com)
- East West Petroleum enters into agreement with Halliburton (prnewswire.com)
- Halliburton Profits Jumps 54 Percent Amid U.S. Drilling Boom (alternet.org)
While now facing greater scrutiny from regulators, contractors in the oil-service industry have considerable liability protection to fight the citations and any subsequent fines, legal experts say. They also have enough market muscle to strengthen liability protection in their contracts with oil companies.
Previously, U.S. regulators have held the rig operator responsible for whatever happens under its watch. The operator hired contractors, who perform drilling, seismic or cementing operations and whose contracts protected them from any liability.
That was upended by the Deepwater Horizon mishap in April 2010, which resulted in 11 deaths, the biggest accidental marine oil spill in history, and tens of billions of dollars in costs. BP said blame also falls on Halliburton, which was in charge of cementing the failed well shut, and Transocean, the drilling contractor that owned the Deepwater Horizon rig. U.S. investigations have widely cast the blame among all three companies.
The citations, issued Wednesday, set a precedent for holding contractors at least partially responsible for such accidents, and may increase the contractors’ exposure to civil suits from anyone claiming damages from the spill, analysts said.
The contractors have pledged to fight the accusations. Halliburton said that it is fully protected against penalties and losses from the Deepwater Horizon incident by its contract with BP. Transocean also said it intends to appeal.
However, if the courts determine that the government has the right to issue a citation to oil-service contractors, there is no contract that will protect them from the fine, according to Larry Nettles, an environmental attorney with Vinson & Elkins, a Houston law firm. “In most jurisdictions the courts do not allow indemnification for fines and penalties, because it defeats the purpose,” which is to punish bad behavior, Mr. Nettles said.
Still the industry is expected to bulk up its contracts even more in the wake of the regulators’ action, legal experts say, to get as much liability protection as possible. The contractors currently have considerable bargaining power to win such new concessions from rig operators on contract protection. Relatively high oil prices have led to a shortage of drilling crews and have put oilfield services at a premium, giving the contractors the upper hand in negotiations.
“When oil prices are high and there’s lots of activity, service contractors can drive a very hard bargain,” said Owen Anderson, a professor of law specializing in energy at the University of Oklahoma.
(c) 2011 Dow Jones & Company, Inc.
- New Federal Report Spreads Blame in Gulf Blowout, Spill
- BP Contractors Could Face Fines Over Gulf Oil Spill
- BOEMRE Looking to Expand Oversight to Drilling Contractors
- Oil Firms Face Liability Protection Issues (online.wsj.com)
- BP Contractors Could Face Fines Over Gulf Oil Spill (gcaptain.com)
- BP Contractors Could Face Deepwater Fines (online.wsj.com)
- Serious New Regulatory Risks Arise for Oil Contractors (BP, RIG, HAL, CAM, SLB, BHI, NOV) (247wallst.com)