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Australian Market for Drilling Chemicals

  • January 2013
  • 85 pages
  • Frost & Sullivan
Report ID: 1698692


Table of Contents

Growing Investment in the Resources Sector Drives Demand

The Australian drilling chemicals market experienced a strong growth from 2010 to 2012 driven by the investment in metal and minerals explorations, coal seam gas drilling, and oil and gas drilling. The recent fall in prices of iron ore and other base metals indicates a temporary peaking of base metal exploration activities in 2012, which is likely to lead to lowered and volatile growth in consumption of drilling chemicals, especially in the offshore drilling chemicals segment. Consolidation in the industry has intensified market competition and elevated entry barriers. This study discusses in detail all these trends that have been observed in the Australian drilling chemicals market and forecasts future developments.

Executive Summary

• Affected by subdued offshore drilling activities, the Australian drilling chemicals market experienced moderate growth from 2010 to 2012. The growth is expected to pick up from 2013 driven by the increased exploration activities for oil and gas and base metals.
• The cyclical character of drilling activity is likely to result in revenue fluctuations in the drilling chemicals market, with an estimated annual growth of about X percent from 2012 to 2014, and X percent annual growth from 2014 to 2019.
• Technical innovation is being leveraged to realize improvements in efficiency, and compliance with increasingly stringent environmental regulations.
• Prices of drilling chemicals have experienced a slow growth, at an estimated annual growth rate of Xpercent from 2010 to 2012.
• The onshore drilling chemicals market is dominated by Australian chemical supplier AMC Drilling Fluids & Products whereas the offshore drilling chemicals market, mainly catering to oilfields, is controlled by three multinational suppliers namely, Baroid Industrial Drilling Liquids, M-I Swaco, and Baker Hughes, complemented by a number of smaller suppliers providing specialized and niche products.
• A highly service-oriented market makes technical capability the most important competitive factor. Accessibility to products is equally important. This means suppliers with sufficient stocks hold a significant competitive advantage.

CEO’s Perspective

1. Metal and mineral exploration for base metals is likely to have peaked.
2. Exploration for precious metals is expected to continue driven by high commodity prices.
3. Offshore oil and gas drilling is likely to experience volatile growth, leading to a volatile demand for drilling chemicals.
4. Industry consolidation has led to intensified competition.
5. Technical capability is the most important competitive factor.

Introduction to the Mining and Oil and Gas Sectors

The mining industry in Australia is a significant contributor to the national economy, accounting for approximately X percent of total national trade. Australia has the largest resource reserves, globally, of bauxite, aluminum, and nickel, the second largest reserves of gold, the third largest reserves of iron ore, and the sixth largest reserves of coal. Australia is among the top five producers of most of the world’s key minerals, including alumina, lead, zinc, gold, iron ore, coal, silver, and copper.
Coal and iron ore dominate mining in Australia, with annual production of iron ore exceeding Xmillion tonnes and coal exceeding million tonnes. In 2009, Australia was the world’s largest exporter of iron ore, accounting for percent of global exports. It was also the world’s largest exporter of coal (constitutedX percent of global exports), and the largest exporter of bauxite and alumina with Xpercent and X percent global share, respectively.

Oil and Gas
Since the discovery of significant oil reserves in Bass Strait in the 1960s, the oil and gas sector has played a significant role in Australia’s domestic energy security and energy export. It has grown to be a $X billion sector. The more recent discovery of vast gas resources, including natural gas and coal seam methane gas, has established Australia as a key energy exporter for the next two decades.

Mining Sector Overview

The Coal Sector in Australia
Australia produces two types of coal, black coal and brown coal. Black coal consists of metallurgical (or coking) coal and steaming coal. Metallurgical coal is used to produce coke, which is used in the steel making process. Steaming coal contains less carbon than metallurgical coal, making it unsuitable for steel making but suitable for power generation. Nearly all metallurgical coal and a significant amount of steaming coal mined in Australia are exported. Japan is the main importer accounting for approximately X percent of steaming coal and X per cent of metallurgical coal exports. South Korea and Taiwan are other significant markets.
The state of Queensland accounts for approximatelyX percent of Australian black coal production, and New South Wales (NSW) accounts for approximately Xpercent. In recent years, new coal mines have been developed, largely based on export contracts, especially in Queensland.
Coal mining in Australia is more fragmented than iron ore mining, although BHP Billiton and Rio Tinto have a significant presence in the industry. Other major participants include Xstrata and Anglo Coal Holdings.
Brown coal is used entirely for power generation. It has high water content and low energy content. Its tendency toward rapid deterioration and spontaneous ignition, when stockpiled, makes it unsuitable for transportation over long distances. Brown coal mining in Australia is concentrated in the Latrobe Valley of Victoria, and the mined coal is used to generate power in nearby power stations. The industry is vertically integrated with the three main coal mines being owned by electricity generators. The coal is excavated by large dredgers and then transported by conveyors to adjacent power stations.

Other Mining Sectors in Australia
Other minerals for which there are significant mining activities in Australia include gold, uranium, copper, and mineral sands.
Australia has a long history of gold mining that dates back to the middle of the nineteenth century. USGS estimates that Australia has the world’s second largest gold reserves, with percent share, followed by Russia with percent. In 2011, Australia was the world’s second largest gold producer, after China, with an output of X tonnes. A large share of the gold deposit and Xpercent of production is located in Western Australia (WA). Major gold mine developments include Boddington (Newmont Ltd.) in WA, Mungana (Kagara Ltd.) in North Queensland, White Dam in South Australia (Exco Resources Ltd.), and Edna May (Catalpa Resources Ltd.). Due to surging gold prices, exploration of gold deposits has also advanced rapidly. According to the Australian Bureau of Statistics (ABS), gold exploration benefited from the largest exploration expenditure (amongst mining commodities) of A$X million (equivalent to $Xmillion) in 2010.
Australia has X percent of the world’s uranium deposit, the most compared to any country. In 2011, production was a little more than X tonnes, or approximately X percent of global production. Currently, Australia is the world’s third largest uranium producer, after Kazakhstan and Canada. In 1984, the three-mine policy was laid down by the Federal Government that names Nabarlek, Ranger, and Roxby Downs (Olympic Dam) as the only uranium mining projects from which exports would be permitted. This policy was eventually abandoned after the federal election in 2007. The elected government then approved a fourth mine called Four Mile in South Australia, from which Uranium can be exported. Uranium mining is gaining more acceptance in Australia as an important source of clean energy (in the context of climate change and carbon tax). The Queensland government recently announced a resumption of uranium mining in the state.
Australia also has a sizable copper mining sector. Its major mine sites and smelters are located around the Olympic Dam in South Australia and Mount Isa in Queensland. Other significant copper-producing operations are at Cadia-Ridgeway, Northparkes and Tritton in NSW, Ernest Henry and Osborne in Queensland, Nifty, Telfer and Golden Grove in WA, and Mount Lyell in Tasmania. Copper is an important industrial material. Along with its alloys, it is used in building construction, electrical cables and electrical equipment, as well as in industrial machinery and equipment. In fact, an average car contains more than Xkilograms of copper, and suburban homes consist of approximately Xkilograms of copper.
Based on the data from USGS, Australia has the second largest world economic resources of copper (Xpercent) after Chile (X percent) and ahead of Peru (X percent). As a producer, Australia ranks sixth in the world, with X percent of world copper production, after Chile (XXpercent), Peru (X percent), and the United States (Xpercent).The total production wasX tonnes in 2011. In 2010, copper exploration in Australia benefited from expenditure of approximately $X million, which is lower than the expenditure for gold and iron, but higher than that for any other individual mineral.

Key Questions This Study Will Answer

• Is the drilling chemicals market growing, how long will it continue to grow, and at what rate?
• Are existing competitors structured correctly to meet customer needs?
• How is the market segmented by different end-user sectors? How is each segment growing?
• How will the structure of the market change with time? Is it ripe for acquisitions?
• What are the key winning factors in the competitive market?

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