Category description

Electrical Submersible Pumps (ESP) are one of the most reliable and efficient ways to lift fluids to the surface, both oil and water.  As the name suggests, it is submerged into the reservoir fluids and pushes the fluid to the surface. An ESP pump can be designed to handle fluids of up to 60,000 b/d and cover various well conditions and production profiles, and generally a low cost solution for high volumes of crude lifting.


Pros

Harsh environment (high H2S ) & highly reliable & efficient

Small footprint of surface facilities 

Superb remote monitoring and flexible design capabilities 

Highly deviated wells and large production volume capabilities

Cons

Low tolerance to solids and sand & Limited down-hole heat resistance of power cable 

High costs to change offshore 

Inefficient in high GOR applications and requires gas separation

Cooling issues in liquid production

Normally, the ESP pump is installed close to perforation areas, in the production tubing string. Working principle of the ESP pump is very similar to any other pump - a multistage centrifugal pump driven by an electrical motor, provides a high speed rotation of impellers that in turn create centrifugal forces to lift the fluids up.

Although, Rod / Beam pumping is the most widely used method, ESP systems are the fastest growing technology, when it comes to penetration rates. Application of ESP is widely used in low carbonate reservoirs, low sand oilfields, highly deviated wells, and able to function in a wide range of production rates and depths. ESP systems can be used in combination with Gas Lift technology (if gas is available) to provide redundancy. Modern technologies allow using rig-less deployment of ESP, thus eliminating the requirements of a drilling rig.

ESP systems are very susceptible to failures caused by 1) Sand 2) Electric spike 3) Frequent on/off of the pumps / motors. On average, ESP pumps have higher failure rates, followed by motors and cables.

Risks & Opportunities

  • Effective utilization of ESP systems requires a very detailed analysis, as almost each well profile makes a difference. Deviation and lateral profile, pressure and temperature, gas-to-liquid ratio, facilities footprint and many more, should be part of the comprehensive assessment. 
  • Dual ESP Systems (primary and back up in the same well) provide one of the best solution in failure-prone areas minimizing downtime and work-over costs, by having redundancy.
  • Technology advancement in Rig-less ESP (Coiled Tubing or Wire-line deployed (WRESP)), allows retrieving ESP without having a drilling rig 
  • Progress in ESP systems for high Gas-to-liquid (GLR) ratio wells overcomes a number of weak areas of ESP systems, as artificial lift method in high GLR wells.

Supply & Demand Dynamics

More than 75% of wells worldwide use artificial lift. Depletion rate and maturing of the oilfield is the major driver for using artificial lift technologies.  The segment is expected to witness the growth rate of almost 9% CAGR till 2023 (source: GM Insights). North America holds almost half of the market and will continue to be the dominant place. A number of artificial lift suppliers are actively expanding their presence globally with more R&D hubs manufacturing plant and services centers.

While the conventional production require artificial lift at a later stage during production, unconventional fields use artificial lift very early, due to fast decline in production. According to Frost & Sullivan, by 2025 92% of the wells will require artificial lift.  

Globally, ESP systems represent around 30% of the segment, but more than 50% in non-rod pumping. Biggest market of ESP systems is Russia.  ESP systems are the fastest growing technology, when it comes to penetration rates. 

A number of demand drivers present in the Middle East that would provide a  growth  in this segment.

  • Redevelopment phases in major oilfields (including offshore) , hence utilization of artificial lift technologies is expected
  • Over 5,000 wells are using ESP or Gas Lift

Supply of ESP is lead by Schlumberger and GE Baker Hughes, followed by Halliburton, Borets, Novomet and Weatherford. 

External Scanning




 
New Entrants is Medium 
  • Moderate CAPEX required 
  • Many  Players
  • Battle for market share
    Expertise is vital 


 
Supplier power is Medium
  • Many providers
  • No alternative for buyers 
  • Product differentiation
  • Can solve customer problem


Competitive Rivalry 

  • Competitive environment
  • Technology is available to many players 
  • Battle for market share
  • Product differentiation


 


Buyer Power is Medium
  • Many providers
  • Spend is significant
  • Switching cost high
    Critical to buyer revenue
    Reliability is key 


 
Substitution
  • Too costly 
  • No alternatives


 


Cost & Price Analysis

Price Analysis

Over the last several years, the demand for ESP systems was fairly stable with a moderate growth. However, the oil price downturn reduced global requirements for ESP, due to reduction in activities, which put pressure on services companies and manufacturers to reduce  prices. in addition the correlation between ESP prices and oil prices may be not be liner, since ESP systems consist of a large number of electrical and instrumentation parts, which is used by other industries, such construction, aviation, military, medical, agriculture and many more.

This is the category where the top-down pricing policy is widely used. One of the key elements the service provider would consider when pricing the ESP system is lost production opportunities and cost of ESP change for operators. Operator is willing to pay more for the ESP system, if it guarantees certain performance levels. E.g. changing a US$ 500K ESP system requires on average of 3-8 days of lost production and daily rig rates. This could be translated into millions of dollars of costs for operators.

Onwards maintenance of ESP systems is another large area of opportunity for service providers, due to switching costs. Depending on the operator requirements for ESPs, pricing models may be geared towards onward operations & maintenance of ESP systems.

Cost Analysis

The ESP system consists of Surface Equipment and Donwhole ESP assembly. The majority of the components are electrical, instrumentation and steel. Depending on the design and application, costs of the ESP system may vary by 4 times e.g. chrome vs. stainless steel down-hole assembly. Below is an estimated cost structure of a typical ESP system. 


Down-hole temperature is another factor that affects the costs of electrical components down-hole, e.g. cabling, sensors and seals, that can withstand high temperature or any other soar service environment.

In addition, an important factor that drives the cost of the ESP system is the design of the system based on production ranges and initial assumptions. On average, ESP systems are designed to handle between 2,000-8,000 B/D that makes ESP service providers to be competitive and refrain from spending large R&D costs to “tailor-made” an ESP system. The moment the ESP system becomes unique, R&D share in the system's price may go as high as 45%.



  • Manufacturing & assembly costs- the majority of the components and parts used in assembling the ESP systems are electrical, instrumentation and steel. Most of the items are heavily used by other industries; hence ESP manufacturers may have limited control of costs.  
  • Research & development costs - for most ESP systems that are designed for standard applications, R&D costs spread over a longer period and larger markets. For any “tailor-made” systems, R&D costs are expected to go up significantly. 

Total Cost of Ownership

Procurement of ESP systems is one of the most challenging categories due to subsurface uncertainty and risks. While most of the risks can be assessed and covered, this extensive risk management results in significant costs to operators. Therefore, it is of utmost importance for operators to carefully consider the full ESP system life and plan design, installation and operation.  In addition, most of the premature failures of ESP systems can be avoided by remote monitoring and intervention. 


Having a solid contractual relationship is vital. A contract shall clearly define roles and responsibilities, boundaries of the ESP system performance and its out-of-specification operation and its consequences must be agreed in advance, in order avoid disputes and claims. Proving the most accurate data and expected reservoir behavior during the ESP design stage is crucial and beneficial to both operators and service providers. 

  • The total cost model shall include the costs of:
  • Acquisition
  • Installation
  • Operation & maintenance, including energy costs
  • Change-out / Workover
  • Down time

Strategy

  • Allow service providers to offer pricing based on “power-by-hour”, i.e. agree a guaranteed period of ESP run life with risk / reward mechanism that would provide an incentive to service companies to design the optimum ESP system. Under these arrangements, all monitoring and maintenance will be done by the service company, for a monthly fee, that may be complemented with an upfront lump sum.
  • Being a bottleneck category, risk is high. Manage the risk carefully, ensure a maximum value and work on alternatives. 
  • Monitor suppliers and its moves in the market.

Technical Insights