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In a recent report, IHS Markit estimates the 2018-Q4 total
fracturing capacity in North America at 26 million HHP, with heavy
concentration in the Permian.
From a technical standpoint, the report shows that 2017 and 2018
saw increasing intensities around factors affecting hydraulic
fracturing demand on a per-well basis, including lateral lengths,
stages, fracturing water volume requirements, well depths, and
proppant loading. However, preliminary IHS Markit data show that
many factors could level off in the future. As a result, future
hydraulic horsepower demand increases would be driven by market
conditions affecting quarterly hydraulic fracturing counts, rather
than technical factors at the well level.
Figure 1: Total frac capacity in North America 2018-Q4
(forecast)
These market conditions are at the
root of a softening of utilization that began in the third quarter
of 2018 and is expected to continue through the first half of
2019; operators will have pricing advantage during this time. This
is expected to change, albeit temporarily, in the second half of
2019 as the backlog of drilling but uncompleted wells in the
Permian begin to complete and fracturing demand increases.
For now, many suppliers experienced a softer than expected third
quarter due to early budget exhaustion by operators, increasing
competitive pricing, a saturated and eroded spot market,
seasonality, a flattening of Permian demand, Permian takeaway
constraints, improved frac efficiency, and excess capacity, with
these factors being mentioned as current challenges on
utilization.
Due to near-term flattening demand in the Permian, operators
have adjusted their capital allocations, and areas such as the DJ
basin and the Eagle Ford have accordingly seen increases in
utilization.
Perhaps due to the transitional market conditions,
2018 saw noticeable acquisitions by pumping suppliers,
including that of Pioneer's pumping services by ProPetro in
November, RSI by Keane in July, and Tucker by STEP in February. The
recent ProPetro acquisition will move the company from a top-10
supplier in the fourth quarter of 2018 to nearly top-5 by early
2019.
IHS Markit's Onshore Services & Materials team's recent
PumpingIQ report for the fourth quarter of 2018 tracks the market
size and horsepower supply for hydraulic fracturing operations in
North America. The report is available in its entirety on Connect™ for Onshore
Services & Materials clients.
David Vaucher is Associate Director, Research and
Analysis at IHS Markit.
