OUTLOOK ’18: US HCl poised for demand surge in new year

HOUSTON (ICIS)–The US hydrochloric acid (HCl) market anticipates greater demand from oilfield users in 2018 and will start the year with separately proposed price increase initiatives of $30-45/wet ton aimed at 1 January and the first quarter.

That may set the tone for the entire year.

HCl prices have already surged since the second quarter of 2017 and have continued to push higher on unplanned outages and continually rising demand from oilfield drilling.

Strong demand from the oilfield has made a once steady and mature chemical market volatile.

The US HCl market has steady and predictable demand for several industrial sectors, including for water treatment, the pulp and paper industry, for steel pickling, production of high-fructose corn syrup and chemical processing.

But oilfield demand has boomed since HCl was found to be useful in the hydraulic fracturing process of breaking up shale deposits to release oil and natural gas trapped in these “tight” formations. That led to a bumper crop of new production capacity in 2012-2014 to meet the rising oilfield demand.

But demand slackened with the collapse of oil prices in late 2014, though it may have consumed one-third of 22-degree Baume  production when the market peaked.

Prices jumped higher twice in 2017, as demand has slowly revived with some crude oil price recovery.

But market participants expect that drilling activity and HCl demand for fracking purposes to grow by as much as 20% in 2018 and suppliers are getting ready for expected demand surges.

Distributors have built additional storage tanks in west Texas and Oklahoma, and new plants in San Antonio and near El Paso are in the midst of commissioning.

Additionally, as prices rise, drilling companies and the service companies that support them are looking at alternative fracking methods that can reduce the amount of acid consumed while finishing a well.

If crude oil prices can attain $60/bbl and stay at the level, drilling activity is expected to pick up in the Marcellus and Bakken fields and disrupt the supply/demand balance once again.

Marcellus spreads across parts of West Virginia, Pennsylvania and Ohio, while the Bakken lies beneath the plains of North Dakota. Both are expensive to produce and have been fairly dormant during the period of lower oil prices.

If those fields come to life with drilling activity, HCl prices are likely to rise significantly.

Drilling activity backed off slightly at the end of the third quarter and beginning of the fourth quarter, but returned to its upward trend by November.

HCl has also become an outlet for chlorine production which has risen in recent months with the rise in prices for co-product caustic soda. Producers have maximised caustic soda production and increased production for co-product chlorine in the process.

That will give integrated producers another way to move chlorine, which cannot be stored, and perhaps provide a steadying influence on the supply side.

Major US HCl producers include BASF, Olin, Occidental Chemical, Westlake Chemical, Formosa Plastics, Covestro and Huntsman.