№3 March 2010
№ 3 (March 2010)
For the past few years, Russia’s oil pump market has had positive dynamics. Its development has largely been stimulated by changes in oil production technology (reducing gusher wells and increasing the number of wells with submersible pumps) as well as by the growth in oil output and the implementation of asset replacement projects.
By This article was provided courtesy of Research.Techart research company (www.research-techart.ru). It is based on marketing research data on the oil pump market.
Electric submersible pumps (ESP) and sucker rod pumps are the key technologies prevalent in today’s upstream production; other types of pumps are not significantly represented. Most Russian wells use ESPs (80,500 units) and sucker rod pumps (66,000 units). The latter technology is used mainly at wells with low flow rates and its share in total oil production is only about 15 percent.
Forecasts on the ratio of technologies used in oil production envision sucker rod pump technology gradually giving way to ESP technology, while other types of pumps (progressive cavity pumps, jet pumps, etc.) will retain their market niches.
This is because many wells with low flow rates and wells with a high water cut are currently being taken out of production due to their low economic efficiency. New wells predominantly use pumps – mostly ESPs – that ensure higher flow rates. In January-April 2009, companies put on stream 1,145 wells with ESPs and only 229 wells with sucker rod pumps.
These factors, combined with a number of objective conditions (long failure-free run times and growing service lives of ESPs), have resulted in an ongoing decline in the sucker rod pump market.
Sucker rod pumps maintain a strong presence only in Tatarstan and Bashkortostan, where they dominate in oil production due to sustainable demand from Tatneft (accounts for 27 percent of Russia’s sucker rod pumps) and Bashneft (25 percent).
Despite the leading role of ESPs in the oil pump market, this segment in general is stagnating. From 2000–2006, sales of these units have only risen at approximately 3-5 percent per year.
Such stagnation is due both to the high saturation of the market and innovations in technology, which increase ESP run times and consequently reduce the need to replace them.
According to our research, despite some quantitative growth in the use of ESP systems (up to 19,900 units) in 2009, the market actually fell in monetary terms (from 22.9 billion rubles in 2008 to 20.3 billion rubles last year). This is primarily due to a fall in the average price of an ESP (manufacturer data show a 35-percent drop in pump prices over the first six months of 2009). Second, negative trends on the global market resulted in Russian oil companies curtailing investment programs and reducing funds usually invested in technical retooling of wells. One of the results of these factors was that market demand has shifted towards cheaper models which only have the most basic features.
Notwithstanding the abovementioned negative trends, Russia is still one of the largest global markets for oil pumps, a fact which is undoubtedly responsible for attracting new domestic and foreign players.
The common trait found in all segments of the oil pump market is the dominance of Russian manufacturers. Only 5 percent of the sucker rod pump market belongs to imports. The largest domestic sucker rod pump producer is Izhneftemash, which clearly dominates over players like Reduktor, Uraltransmash, PKNM, Elkam-Neftemash and others.
The ESP market is also dominated by Russian producers, the largest being Borets, Alnas and Novomet Perm. The sustainable position of Russian companies on the market is conditioned on their low production costs and, importantly, more attractive service options.
In recent years, growth in competition on the ESP market has been changed by foreign companies entering the segment, particularly two U.S.-based manufacturers that are part of Schlumberger and Baker Hughes. The Russian market is also closely watched by Chinese producers.
Currently the servicing market is developing much faster than the ESP sales market. This trend is in line with the global practice of oil majors to divest non-core assets. In 2007, some 28,600 wells were serviced by outsourced contractors, while in 2008 this figure rose to 32,900 wells.
During 2006-2008, the servicing market was growing 9.54 percent per year on average (compared to 1.79 percent growth of the equipment market), according to our data. The servicing market is dominated by domestic ESP producers which service over 70 percent of wells with outsourced servicing.
While oil companies invested less into technical upgrading (Russia’s average – by 20 percent) and the cost of some services fell (by 30 percent in some cases), outsourced servicing continued to grow in 2009 (CAGR*=22.1 percent). According to our estimates, by the end of 2010 some 57 percent of servicing will be outsourced.
The outsourcing trend will be also stimulated by the crisis. With limited ready assets, oil producers will pay much more attention to cost-cutting and boosting production rates.
The crisis has had a negative impact on all segments of the oil pump market. The key consequences of the downturn include lower rates of launching new fields and lower capital investments by the oil producers into core assets upgrade programs. The market accent has shifted from purchasing new equipment to repairing and modernizing assets.
As a result, we estimate that 2010 ESP market results will show an 8-percent fall in value terms and a 3-percent decline in volume terms.
In the future, a favorable market environment will result in annual growth of ESP sales in value terms, largely supported by the growing demand for more expensive units (large depth of operation, engine capacity, etc.). At the same time, the growth rate of the servicing segment will outstrip the growth of ESP sales.
*Compound annual growth rate