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Proppants market could be worth $10bn by 2017

By Emma Hughes
Published: Thursday, 05 September 2013

Fracking continues to drive demand for frac sand, resin-coated, ceramic product

Proppants have become one of the most dynamic products in North American over the past 10 years, with sales increases outperforming most other industrial sectors.

With no end in sight for the shale energy boom, demand for the three main proppant types - frac sand, cermaic and resin-coated varieties (pictured) - is expected to mushroom in the next five years.
During the hydraulic fracturing (fracking) boom-years from around 2010 to 2012, US proppant use rose dramatically, reaching 30m s.tons in 2011.

The three main proppant types: frac sand, ceramic and resin-coated varieties of both have been used to prop open fractures created during hydraulic fracturing for years. The first commercial hydraulic fracturing operation was started in 1847.

Much of the current demand is for frac sand proppants, which take up 80% of the current market share, leaving ceramic proppants and resin-coated proppants with around 10% each.

Frac sand proppants have become the product of choice for most manufacturers due to their low-cost and fairly abundant availability.

There are many deposits of silica sand that meet American Petroleum Institute (API) specifications for frac sand in the US, yet not all silica sand can be used for this purpose.

When referring to proppant market growth, analysts and market commentators are most often talking about the frac sand portion of the market, which has buoyed several producers’ results over the past year.

Hi-Crush, which produces frac sand proppants for the North American market, highlighted that increased proppant demand was behind its positive Q2 2013 results.

The company reported net income of $14.7m, up from $11.8m in the same period in 2012, and revenue of $27.1m, which has increased from $20.6m in Q2 2012.

Hi-Crush sold more than 350,000 s.tons frac sand produced from its Wyeville facility during Q2 2013, with its recently-signed partner D&I contributing an additional 56,473 s.tons in frac sand sales for the period.

And this demand growth is set to continue.

"Our customers met or exceeded their contract terms in the second quarter, and volumes were trending up throughout the quarter as we transferred contracted tonnes from Augusta and our customers took advantage of beneficial pricing," said Hi-Crush co-CEO, James Whipkey.

"This, combined with our sales under spot arrangements, resulted in our Wyeville plant operating at almost full capacity for the quarter and achieving record levels of production in the month of June. With D&I now integrated into Hi-Crush, we see many opportunities ahead to increase volumes across our consolidated company," he added.

Speaking more specifically about the proppant market, co-CEO Thomas Rasmus said that Hi-Crush saw an extension of positive proppant trends from the first quarter, including rising proppant intensity and a move towards 24-hour operations.

Resin-coated proppants

Resin-coated proppants, which can be sand- or ceramic-based, are being increasingly used in the US due to their ability to increase proppant pack conductivity, leading to higher oil and gas production.

Preferred Sands, based in Radnor, Pennsylvania, develops resin-coated sand products for the US market and recently signed a partnership agreement withE Proppants, which will extend proppant reach and capacity.

“[The partnership] will involve the manufacturing, distribution and import and export of resin-coated proppants in the US and Mexico,” Kevin Traynor, executive vice president of operations, told IM.

“We have our plant in Genoa, Nebraska, which is capable of producing about 240,000 s.tons per annum resin-coated proppants and E Proppants’ manufacturing facility in Mexico has the capability of producing around 480,000 s.tons per annum proppants,” he added.

Traynor explained that the resin-coated section of the US proppant market currently stands at around 10%, and he doesn’t expect this situation to change much as the market progresses.

Preferred does however see opportunity in new and emerging markets, but maintains that North America is likely to remain its largest target.

“I think we’ll see an [expansion] in the resin-coated proppant market for outside of the US in emerging markets like Mexico and Central America. That’s where I think we’ll see the future growth opportunities,” Traynor explained.

“I don’t think we’ll see the explosive growth that we’ve seen over the past five or seven years; I think we’ll see more normalised growth in that marketplace,” he added.

Ceramic success?

Ceramic proppants have maintained their 10% share of the US proppant market despite the fact that they make up the most conductive proppant pack.

The reason for this is cost. Comprised most often of calcined bauxite, calcined kaolin or a mixture of both, ceramic proppants are simply far more expensive to produce than their sand-based counterparts.

Ceramic proppants do hold other advantages over frac sand, however, and are often used by customers who are drilling deeper wells.

French minerals conglomerate Imerys entered into the ceramic proppant market in earnest after acquiring manufacturer PyraMax Ceramics LLC in April this year.

Imerysinvested $235m in the company, which has the potential to be increased by the end of 2014, although additional investment will not to exceed $100m, the company told IM earlier this year.

“The interest in non-conventional deposits is opening up global prospects for the oilfield minerals market, which was already growing in the USA. By investing in this new industrial complex, Imerys has reached a significant step in the implementation of its internal growth strategy by 2016,” Gilles Michel, Imerys CEO, said.

Imerys Q2 2013 results reflected the investment, with Michel arguing that the US ceramic proppants market was “underserved and poorly served”.

Ceramic proppantsis a booming sector in the US,” he said.  “We see the price of proppants getting stronger and stable on the American market and this is good news for us”.

“We will be ramping up [ceramic proppant manufacturing] in 2014. We are in line with our plan (...) we are penetrating a growing market.”

Michel added that the move to invest in the oilfield minerals market, and specifically ceramic proppants, was because the American market was being served by product from China.

Proppant prospects

Whether or not the market share for each type of proppant is set to change in future, there is no doubt that the demand for all three will continue to grow in line with hydraulic fracturing activity.

The market has grown from 2011 levels to around 35m s.tons, according to Preferred Sands, and while growth is expected to slow somewhat in the coming years double digit gains are still expected.

According to the latest research report from Freedonia, overall demand is expected to grow from around 35m s.tons today to over 45m s.tons in 2017.

This market is expected to be worth more than $10bn in four years’ time.

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