The June 2015 BP Statistical Review of World Energy reports that in 2014, oil was the most widely consumed source of energy globally, at 33% of worldwide energy consumption. Natural gas accounted for 24%. Although a reduction in oil exploration has accompanied the drop in oil prices starting in the second half of 2014, the market for analytical instruments used in the oil and natural gas industry is expected to continue to grow. The increased demand for these instruments is in part a result of downstream activities—such as oil and gas processing—having increased despite the decrease in oil exploration.

Unless otherwise indicated, the information in this article comes from Strategic Directions International’s August report entitled “Strike It Rich: Opportunities & Threats in the Oil & Gas Industry for Analytical Instrumentation, 2014–2019.”

Analytical instrumentation is used in all major stages of oil and gas production. In upstream exploration activities, instruments are used for testing samples from exploratory wells to assess if those sites will be desirable for production. Instruments are used in the production process for testing the products of wells and determining compliance of production areas with environmental regulations.

Midstream in the oil and natural gas industry, crude oil and raw gas are transmitted to refineries or other processing facilities and stored. Analysis at this stage includes product testing, and testing of transportation equipment, pipelines and storage facilities for degradation. Environmental testing of any gases released is also conducted.

At refineries and processing facilities, analytical instruments are used to monitor the conversion of oil and natural gas to products, such as gasoline and liquefied natural gas. This conversion includes removal of impurities, separation of fractions of the material and chemical conversions. The resulting products are analyzed for quality and regulatory compliance.

By segment, petroleum refining, natural gas processing, and exploration and production (E&P) together make up more than half of demand for analytical instruments in the industry. Other end-markets include contract testing, utilities and academia. The 2014–19 compound annual growth rates (CAGRs) for instrument demand in natural gas processing and petroleum refining are predicted to be the highest of the industry segments and in the mid-single digits. One factor contributing to this expected growth is increasingly stringent environmental and product quality standards.

Not surprisingly, given the fall in production activity with the drop in oil prices, E&P’s 2014–19 CAGR is expected to be slightly negative—it is the only industrial segment with a forecast negative CAGR. Other factors contributing to a long-term market slowdown include the increasing difficulty in locating and extracting petroleum, and political conflicts in many regions producing oil.

The CAGR for instrument demand the next five years is expected to be highest in China. As a result of increased environmental monitoring, most of this growth will be downstream. The region with the next-highest growth will be Rest of World, followed closely by Other Asia Pacific (excluding Japan, China and India). All of these areas are projected to experience CAGR in the mid-single digits. In addition to higher African demand, capacity is projected to increase in the Middle East, contributing to the growth in the Rest of World segment. Refining capacity in Other Asia Pacific is anticipated to increase.

A variety of analytical technologies are used in the oil and gas industry, with total 2014 demand approaching $2 billion. The most commonly used technology based on product demand was gas analysis, holding comprising one-third of the market. Gas analysis instruments include process and fixed site GC systems, stack gas monitors, portable gas analyzers and fixed site gas analyzers. Each of the technologies accounts for roughly one-fourth of the market for gas analyzers in the petroleum and gas industry. Demand for gas analysis instruments in 2014 was about one-third of overall demand in the market.

One category of gas analyzers, process GC systems, is used mainly for monitoring petroleum refinement. The instruments can continuously run analysis of multiple components for many hydrocarbons. GC systems are used up- and midstream to determine the calorific value of petroleum.

Stack gas monitors and continuous emission monitoring systems (CEMS), another type of gas analyzer, must be used to monitor emissions from refineries and power utilities. Of the gas analysis technologies, the market for stack gas systems and CEMS is predicted to experience the highest CAGR for instrument demand—in the high single digits—over the next five years. The other segments are expected to have CAGRs in the low-to-mid single digits.

The technologies that stack gas monitors and CEMS use include nondispersive infrared (NDIR) detection for carbon monoxide and carbon dioxide, and chemiluminescence for detecting nitrogen gases such as nitric oxide. Fixed site analyzers are typically used for safety or environmental emissions monitoring, often continuously, and make use of technologies such as NDIR and diode laser spectroscopy. They detect gaseous compounds such as carbon dioxide, methane and sulfur, and tend to be used downstream in refineries and gas processing plants. Portable gas analyzers are similar in function but are often used for infield monitoring because of their portable nature.

In 2014, more than half of the demand for gas analysis systems was for natural gas processing and petroleum refining applications; E&P held the next-highest market share. The natural gas processing segment is expected show the highest CAGR for instrument demand from 2014–19. As with the overall analytical instrument market, E&P for gas analysis systems is the only segment projected to experience a negative CAGR.