Demand for drilling products and services in the US is forecast to advance 1.9 percent per year through 2012 to $48.4 billion. Gains will be heavily restrained by a pullback in spending on new onshore drilling rigs. When drilling rigs are excluded, spending is expected to rise at a more robust 4.6 percent annually. Crude oil prices have repeatedly exceeded record levels in 2008. Rising demand in industrializing nations is pushing up oil consumption at a time when many key producing areas are facing difficulties in maintaining and expanding their oil output, eroding spare production capacity and sharply increasing crude prices. Similar supply issues are occurring in the US natural gas market, as stagnant production and import infrastructure limitations have restrained supplies, pushing prices high enough to force a significant portion of industrial consumers out of the market. These continuing supply constraints are expected to leave prices elevated through the upcoming decade. These and other trends are presented in Drilling Products & Services, a new study from The Freedonia Group, Inc., a Cleveland-based industry research firm.

As drilling operations increase in complexity, the industry is becoming more reliant on high-technology services such as directional drilling control and logging- and measurement-while drilling. Increased spending on these services will help drive the drilling services sector to the fastest gains through 2012, as will the continued expansion of contract drilling demand. In sharp contrast, the drilling equipment and consumables sector is expected to reverse several years of exceptional growth to post declines, with the losses being driven by a large decrease in spending on newly built onshore drilling rigs. Other prospects in the sector are more favorable, particularly for fixed-cutter drill bits and advanced well logging equipment. The large tubular goods market will continue to benefit from increases in drilling efficiency, with gains in casing demand being bolstered by a trend toward greater footage drilled per rig. Within the smaller drilling fluids market, future demand gains will be supported not only by the expansion of drilling activity, but also by a continuing shift toward synthetic-based muds and higher value water-based muds that is driving growth in market value.

The Southern Region will continue to dominate drilling products and services spending through 2012, buoyed by strong increases in demand from offshore operations in the Gulf of Mexico. The fastest gains will be in the Western Region, with growth being driven by natural gas drilling in the Rocky Mountain states. Slower growth is expected in the Midwestern and Eastern Regions, although a reversal of existing moratoriums on offshore drilling would hugely enhance long-term prospects in these areas.