Corrosion is an electrochemical reaction composed of two half cell reactions, an anodic reaction and a cathodic reaction.
The anodic reaction releases electrons, while the cathodic reaction consumes electrons. There are three common cathodic reactions, oxygen reduction (fast), hydrogen evolution from neutral water (slow), and hydrogen evolution from acid (fast).

Anodic reaction M → Mⁿ⁺ + ne^- ;M stands for a metal and n stands for the number of electrons that an atom of the metal will easily release.
For iron and steel, Fe → Fe²⁺ + 2e^-

Cathodic reactions X₂ + 2e^- → 2X^-
e.g,  O₂ + 2e^- → 2O-
O₂ + 4 H⁺ + 4e^- → 2H₂O  (oxygen reduction in acidic solution)
 1/2 O₂ + H₂O + 2e^- → 2 OH^-(oxygen reduction in neutral or basic solution)
2 H⁺ + 2e^- → H₂  (hydrogen evolution from acidic solution)
2 H₂O + 2e^- → H₂ + 2 OH^-  (hydrogen evolution from neutral water)

Each half-cell reaction has an electrical potential, known as the half-cell electrode potential. The anodic reaction potential, Ea , plus the cathodic reaction potential, Ec , adds up to E, the cell potential. If the overall cell potential is positive, the reaction will proceed spontaneously.

Corrosion cells form for the following reasons
Corrosion cells are created on metal surfaces in contact with an electrolyte because of energy differences between the metal and the electrolyte. Different area on the metal surface could also have different potentials with respect to the electrolyte. These variations could be due to i) metallurgical factors, i.e., differences in their composition, microstructure, fabrication, and field installations, and ii) environmental factors. Carbon and low alloy steels are the most widely used material in the oilfield. Stainless steels (Fe-Cr-Ni), and nickel-base corrosion resistant alloys (CRA), such as Incoloys (Ni-Fe-Cr), Inconels (Ni-Cr), Hastelloys (Ni-Cr-Mo-Fe-Co) etc., are also used in highly corrosive environments.

Metallurgical factors
Steel is an alloy of iron (Fe) and carbon (C). Carbon is fairly soluble in liquid iron at steel making temperatures, however, it is practically insoluble in solid iron (0.02% at 723C), and trace at room temperature. Pure iron is soft and malleable; small amounts carbon and manganese are added to give steel its strength and toughness.

Most of the carbon is oxidized during steelmaking. The residual carbon and post-fabrication heat treatment determines the microstructure, therefore strength and hardness of steels. Carbon steels are then identified by their carbon contents, i.e., low-carbon or mild steel, medium carbon (0.2- 0.4 % C), high-carbon (up to 1% C) steels, and cast irons (>2 % C). American Iron and Steel Institute (AISI) designation 10xx series represent plain carbon steels, last two digits indicating the carbon content. For instance, AISI 1036 steel, commonly used in sucker rods, contain 0.36% carbon. Low alloy steels contain 1-3% alloying elements, such as chromium-molybdenum steels, 4140 (1% Cr-0.2% Mo-0.4% C), for improved strength and corrosion resistance. American Petroleum Institute (API) specifications also provide guidelines for strength and chemical composition of oilfield steels.

During equilibrium solidification of steel, individual grains of almost pure iron (ferrite), and grains richer in iron carbide (cementite, Fe3C) within ferrite form. The lamellar carbide structure with ferrite is known as pearlite. If, however, steel is rapidly cooled to room temperature (quenched), carbon is retained in a highly strained matrix known as martensite. This structure is very hard and brittle and is not suitable for most engineering applications. The microstructure of fast cooled steels, for instance after welding or hot-rolling, are modified by reheating steels to a critical temperature range and controlled cooling, i.e., tempering, normalizing, and annealing.

The microstructure of a low-carbon pipe steel is shown (magnified 100X) in (left pic) transverse and (right pic) in longitudinal sections, where light grains are ferrite and the dark grains are pearlite. Other impurities in iron may also migrate to grain boundaries forming micro-alloys that may have entirely different composition from the grains, hence may have different corrosion properties.

In a corrosive environment, either grains or the grain boundaries having different composition can become anodic or cathodic, thus forming the corrosion cells. Hydrogen evolution reaction can take place on iron carbide, and spheroidized carbon in steels, and graphite in cast irons, in acidic solutions with relative ease; areas denuded in carbon become anodic and corrode preferentially. Therefore, post-weld heat treatment of steels is critical in order to prevent corrosion of the heat affected zone (HAZ), sensitization and intergranular corrosion in stainless steels.

Other metallurgical factors include improper heat treatment for stress relief after hot rolling, upsetting, or excessive cold working; slag inclusions, mill scale, water deposited scale and corrosion product scales, nicks, dents and gouges on the metal surface. Scars caused by pipe wrench, tongs, and other wellhead equipment on sucker rods and tubing would become anodic and corrode downhole. Likewise, new threads cut into pipe will be anodic and corrode in the absence of suitable corrosion protection.

Deformation caused by cold bending or forcing piping into alignment will create internal stresses in the metal. The most highly stressed areas will become anodic with respect to the rest of the metal. Hammer marks, nicks and gauges will also act as stress raisers and may cause fatigue failures.

Environmental factors
Sections of the same steel may corrode differently due to variations in the concentration of aggressive ions in the environment. For instance, a casing or a pipeline could pass through several formations or soils with different water composition, hence, sections of the casing or the pipe could experience different rates of corrosion. Similarly, a pipeline crossing a river will be exposed to higher concentration salts as compared to dry land. It is difficult to predict the effect of higher salt concentrations but, generally, sections of steel exposed to higher salt concentrations become anodic and corrode.

Differences in the oxygen concentration on the metal surface cause particularly insidious forms of corrosion. A common example is corrosion of pipes under paved roads, parking lots, or pavements.

Lack of oxygen under the pavement render that section of the pipe anodic, hence pipe corrodes preferentially. Similarly, loose backfill placed into ditch to cover a pipeline is more permeable to oxygen diffusion; the topside of the pipe will become cathodic, and the bottom resting on undisturbed soil will become anodic and corrode. Crevice and pitting corrosion mechanisms in aerated systems can also be explained by differential concentration cells.