The state of Wisconsin has become
the US’s top frac sand hub of activity. Sure, there are
good frac sand deposits near Brady in Texas (Hickory
Sandstone), and most recently North Dakota has come on the
radar with both silica sand and kaolin resources as potential
proppant material.
But Wisconsin is where it’s at
right now. In just five years, frac sand activity in Wisconsin
has boomed, including a 100% increase from 2011 to 2012, from
just a handful of facilities to >100 frac sand sites.
These sites include mines,
processing plants, and trans-loading stations concentrated in
the Maiden rock area, near Chippewa Falls, and in Trempealeau
and Monroe counties.
According to the latest US
Geological Survey (USGS) data, Wisconsin ranked third in total
US industrial silica sand production at 3.39m tonnes in 2010,
accounting for 11.3%, after Illinois (4.37m tonnes, 15%) and
Texas (3.61m tonnes, 12.5%). But within the silica sand sector,
the state is leading in frac sand production.
Some good analytical work has been
conducted recently by the Wisconsin Center for Investigative
Journalism (WCIJ). In 2011, the WCIJ identified 41 facilities
operating or proposed in the state. As of July 2012, this had
increased to 87 permitted sites (51 operational, 36 in
development) and 20 sites at proposal stage (see map and
table).
The sites, both operational and
proposed, differ in their sophistication and by the type of
operating company.
Preferred Sands LLC in Blair, for
example, is a relatively recently established (2007) private
company which has grown quickly with frac sand assets across
North America.
Preferred operates an integrated
facility where the sand is mined, processed and loaded into
rail cars at a single site. Each week, some 7,500 tonnes of
sand is moved by rail to oil and gas fields in Texas, North
Dakota and Pennsylvania.
EOG Resources in Chippewa Falls, is
an oil and gas explorer with its captive supply of frac sand,
and has a network of several mine sites that serve one
processing plant and rail-loading facility.
Smaller, often family-owned, mine
operators without their own processing capabilities haul raw
sand to processing and transportation.
The Preferred Sands Blair operation
is one of 20 such frac sand operations that have sprung up in
the past two years in Trempealeau county, Wisconsin. More are
planned.
An outcrop of the Jordan sandstone formation
in Wisconsin, a primary target for frac sand
developers in the state. (courtesy Mark Zdunczyk)
Why Wisconsin?
Wisconsin has some of the best
resources for frac sand in the US, also known as “Northern
White”, and has a reputation as the industry standard in
the proppant market.
Frac sand specifications are not
complex, but they are reasonably strict and not all silica sand
deposits can make the API RP 56 specification.
Aside from strict control of
preferred grain size distributions (eg. 20/40, 30/50, 40/70
mesh), frac sand needs to be a pure quartz (99+%
SiO2), with a high degree of roundness and
sphericity.
These properties impart high crush
resistance under pressure (generally between 6,000 psi and
14,000 psi) and conductivity, or flow, of oil or gas through a
pack of these grains hydraulically blasted into the target
formation.
In the US, silica sands that meet
these specifications tend to be from older sandstone
formations, such as Cambrian and Ordovician sandstones, and
more specifically, from the Jordan, Wonewoc, Mt Simon, and St
Peter Formations.
Wisconsin has a large zone of
Cambrian sandstone (see map) which hosts these frac
sand bearing formations. Primary areas of interest in frac sand
development have been in the west of the state, stretching from
Burnett county in the north to Trempealeau, Jackson, and Monroe
counties in the south.
The Jordan Formation forms a narrow
outcrop band on the upper slopes of the ridges, and is exposed
in the valleys of southern Pierce county, and along the western
side of the Chippewa Valley. The Wonewoc forms a wider outcrop
area on the lower slopes.
In the north, primarily in Barron
and Chippewa counties, Jordan sandstone is mined on hilltops,
and Wonewoc sandstone on lower hillsides.
Most new mines under development or
proposed in Trempealeau, Dunn, Buffalo, Jackson, and Monroe
counties are in the Wonewoc.
In Pierce county, Jordan sandstone
(the upper, coarser-grained Van Oser member) has been mined
underground for many years from tunnels driven into the bluffs
beneath the Prairie du Chien dolomite.
According to Bruce Brown, senior
geologist, Wisconsin Geological and Natural History Survey, the
fact that the Van Oser Member is near the top of the Jordan has
created interest in mining it from the floor of depleted
Prairie du Chien dolomite quarries on ridge tops in Dunn, St.
Croix, and Buffalo counties.
Although the Wonewoc has more
material not suited for frac sand (ie. finer grain sizes can be
used for glass) it is easier to mine in the southern region
because of the much greater surface exposure, which eliminates
the need to mine underground.
Mt Simon sandstone is found to the
north-east in Clark, Wood, northern Jackson, and Monroe
counties. There is increasing interest in the Mt Simon
sandstone and the alluvial sand that is locally derived from Mt
Simon sandstone, a large portion of which is mined as a
by-product of cranberry bog construction.
Separated silica sand grains and drill core of the Jordan
Formation,
Wisconsin, showing good roundness and sphericity, which,
along
with high crush resistance (imparted by high SiO2
content, 99+%),
are key parameters for frac sand specifications (pictures
courtesy
of Mark Zdunczyk, consulting geologist, US).
Storm impact
A frac sand storm, whipped up by
the demand from shale gas drilling in North America, has
therefore hit Wisconsin, clearly catching some districts and
communities by surprise.
While the technique of hydraulic
fracking may be under protest in certain shale gas plays, such
as the Marcellus Shale in Pennsylvania, it is the further
upstream development of frac sand mines and plants that is
causing some consternation in this state.
It is an emotive subject, often
dividing communities with debate raging against the increased
traffic and environmental impact but also for the employment
and revenue earning potential of a local growth industry.
A number of counties, such as
Buffalo, Dunn, Eau Claire and Pepin have initiated temporary
moratoriums to review the situation as well as to update
land-use regulations.
Certainly, the various permitting
authorities are overwhelmed with applications for the frac sand
sites.
The WCIJ found that about one-third
of Wisconsin’s frac sand operations were in towns with no
zoning regulations. In the US, zoning is used as a permitting
system to prevent new development from harming existing
residents or businesses.
In areas with no zoning, the only
controlling tool by the local authority is the reclamation
permit, ie. rehabilitating the land after mining. Thus certain
districts are feeling more vulnerable than others.
Certainly, the frac sand pond spill
into the state’s St Croix river in May resulting in the
state suing Interstate Energy Partners and Tiller Corp. has not
helped the mining sector’s cause.
But a number of Wisconsin counties
and towns are evaluating others measures to bring into
play.
Wood county is charging frac sand
companies operating within its boundaries with non-negotiable
haulage charges effective from August 2012, ranging 13-40
cents/tonne for each mile driven on county roads.
The potential sums involved
demonstrate the economic benefits that frac mining can bring:
Completion Industrial Minerals, $2.9m; Carbo Ceramics and
Panther Creek collectively $5.84m; Northern Frac, $1.39m.
Outlook
Despite any setbacks in permitting
or otherwise, demand for Wisconsin frac sand looks set to
continue for the foreseeable future and projects are waiting in
line.
The accompanying table outlines
company projects in development and at proposal stage during
July 2012.
A financial analyst has estimated
that at least 14.1m tonnes of new frac sand capacity (49% of
total current production) is under construction, with another
11.5m tonnes (an additional 40% of current production)
permitted and/or proposed in the state.
Robert Rasmus, CEO of Hi-Crush
Proppants LLC, which floated on the stock exchange for $191m in
August, told IM at the time: “We believe
that demand for proppant, and specifically Northern White frac
sand, will increase over time and outstrip supply,”.
Hi-Crush produces 1.6m tpa frac
sand from its mine and plant in Wyeville, Monroe county,
Wisconsin. The company expects to expand to 1.22m tonnes in
2012 and a further 1.46m tonnes in 2013.
Also in August, Superior Silica
Sands LLC announced the building of another frac sand mine and
dry processing plant near Barron, to produce 2.4m tpa before
the end of the year. The company is also expanding the mine
life of its Chippewa county mine.
But is such a fever of project
development sustainable? The answer is surely no.
Two years ago uncoated frac sand
prices were $40-45/tonne, and then soared to >$100/tonne in
early 2012 owing to a sudden tightness in supply. This
attracted a lot of interest in frac sand development. Prices
have since come down to between $20-$30/tonne ex-works.
US Silica reported that frac sand
spot prices, which might be in the region of $80-100/tonne
grade depending, fell by 18% in Q2 2012.
Miguel Pena, vice president sales
at Preferred Sands told IM: “We’re
in it for the long term, and are very bullish, but the short
term will be a bumpy ride.”
The US is set to become a major
natural gas producer, Pena observed, and prices are at rock
bottom and cannot go much lower.
“Therefore there is not much
room left for inefficiencies that many newcomers [to the frac
sand supply sector] are experiencing. The market is hurting
newcomers.” Pena added.
Although frac sand prices were at a
high of around $120/tonne, some long term contracts have now
been fixed at prices ranging $40-50/tonne.
As the market stabilises, more
mergers and acquisitions among the frac sand miners, and
vertical integration from the oil and gas exploration companies
is to be expected.
Also logistics is becoming even
more of a fundamental factor in the supply chain which is
impacting companies without the optimum facilities or deals in
place, such as by being caught out by long truck haulage routes
or lack of rail proximity.
Preferred Sands now has 4,500 rail
cars. “Logistics is everything” said Pena. “The
whole business is moving to shifting high volumes of sand in
single shipments, therefore unit trains and bulk storage is the
way.”
On the part of the mining sector,
some companies have already taken steps to assist with
co-operation and compliance with local districts in order to
alleviate potential problems in development.
Badger Mining Corp., Fairmount
Minerals, Unimin Corp., and US Silica recently formed a
state-wide association with a strict code of conduct to promote
sound environmental practices across the industry Ð the
Wisconsin Industrial Sand Association, based in Eau Claire.
Nevertheless, it is going to be a
far from easy ride. Buffalo county, which has seven projects in
development and another three proposed, looks likely to extend
its seven month mining moratorium ending 31 October 2012.
A public hearing was set for 5
October, and if approved, the moratorium on frac sand mining
will be extended to 30 April 2013 in order for the county to
review the impact of mine development.
Meanwhile, with the US election
campaigns getting underway, mid-September saw the democratic
candidate for the 30th Assembly district of Western
Wisconsin, Diane Odeen, state her opposition to frac sand
mining in the area claiming that the short-term benefits the
industry would bring to the area do not outweigh the long-term
income brought in by tourists.
So it might be that whatever the
outcome of local opposition or delay to mining development, and
that certainly remains a factor, natural selection by market
forces could well weed out and reduce the number of frac sand
players in the near to medium future.
The frac sand storm that has
engulfed this Midwestern state maybe heading eventually for a
lull, but some fierce squalls remain on the radar for the time
being.
References:
“Hydrofrac sand in
Wisconsin”, 2011, Bruce Brown, senior geologist, Wisconsin
Geological and Natural History Survey.
www.wisconsinwatch.org/2012/07/22/map-frac-sand-july-2012, Kate
Prengaman, reporter, Wisconsin Center for Investigative
Journalism.