For many, the move towards shale
oil and gas recovery in the EU seems obvious since in the US, a
boom in this market (Fig.1) has transformed the
country’s annual energy outlook, ending a long decline in
oil production, cutting natural gas prices by two thirds from
their 2008 peak and encouraging hopes of a sustained recovery
in US manufacturing based on cheap energy.
Furthermore, the shift in power
generation away from traditional sources like coal has cut
greenhouse gas emissions and other associated pollutants. The
US can now speculate about a future of self-reliance in energy,
something that might have once seemed an impossible feat.
“The country is producing over
10% of the world’s crude oil supply. This landmark is
testament to how responsible shale development is changing not
only the US energy landscape, but the global outlook as well.
The US and Canada are the only major producers of tight oil in
the world,” the US Energy Information Administration (EIA)
has reported.
The US shale revolution has been a
story of technological progress. As in any such period of rapid
advancement, it makes a big difference whether or not you have
the right technology as well as market position, including the
right access to resources through lease agreements.
However, the standard-bearers of
the revolution are not always the ones that benefit the most.
By creating additional supply, the US shale boom knocked away
the support under North American natural gas prices; hurting
the profitability of companies that made most of their income
from selling gas. On the other hand, companies that moved more
quickly into oil have done much better.
The recent rapid growth in the
production of unconventional oil and gas (shale gas and tight
oil) in the US has also had global implications, in particular
a significant divergence of natural gas prices between the US
and major economic trading partners, such as the EU, Japan and
China.
Furthermore, the unconventional oil
and gas revolution has had an uneven impact on US consumer
prices. Gas prices for residential consumers have fallen from a
peak pre-2008, while industrial and power sector gas prices
fell by about 50% from 2008 highs. Residential electricity
prices have continued to rise, while industrial electricity
prices have risen at a lower rate. For households, the effects
of the unconventional oil and gas revolution have been largely
outweighed by continued increases in electricity prices, and in
particular, gasoline prices.
The dramatic decline of US natural
gas prices does not appear sustainable in the longer term,
however. Prices fell to their lowest point of $1.95/MMbtu at
the beginning of 2012, before climbing to $4.69/MMbtu in
January 2014 and falling to around $4/MMbtu at the time of
writing.
This price collapse was due to a
number of short-term factors including limits on export
capacities; limited elasticity of natural gas consumption in
the residential, industry and electricity sectors; and the
production of highly valuable liquid fuels associated with
natural gas production. Longer-term expectations of production
costs for shale are situated closer to $6-10/MMbtu.
Important news from the last few
months (Table 2) illustrates the national as well as
international importance of US shale development, but also
public acceptance concerns.
Foreign investment attracted by US shale
One of the most spectacular
repercussions of US shale development has been the attraction
of foreign investment in the country as investors seek to take
advantage of this relatively cheap energy source.
On 10 April 2013, SABIC of Saudi
Arabia announced plans to exploit the US shale boom and
capitalise on cheap US feedstock prices by developing at least
one new cracker in the country, with a view to investing in one
or more projects utilising ethane derived from shale gas as a
feedstock.
The move is a reflection of
international attention garnered by US shale resources, even
from market players based in oil-rich regions such as Saudi
Arabia, where feedstock costs are relatively low compared to
regions such as Asia and Europe. SABIC simultaneously announced
the signing of a research agreement with MIT on new processes
for production from unconventional feedstocks, such as shale
gas.
One year later, Royal Dutch Shell
and the China National Petroleum Corp. (CNPC) signed a deal to
boost cooperation in sectors like deep sea exploration as well
as liquefied natural gas (LNG) and unconventional gas sources,
like shale.
Shell hoped to benefit from the
operational and technological experience gained during the
development of shale gas in North America, while CNPC holds the
country’s premium oil and gas acreage.
Later, in May 2014, Mitsubishi
Corp., Mitsui & Co., Itochu Corp. and other Japanese
trading houses said they would push on with investments in
North American shale oil and gas fields, despite more than
$600m in write-downs in the sector owing to low gas prices and
reduced reserve estimates over the last two years. The comments
from the Japanese executives are a vote of confidence in the
long-term outlook for unconventional drilling in the US and
Canada.
Are US exports likely?
Europe buys almost 30% of its
natural gas from Russia. In light of the recent and on-going
political events in Ukraine, the question of whether the US
should export shale oil and gas to Europe becomes critical,
even though nobody should underestimate the added costs of
transport and, in the case of gas, pressurising at the loading
terminal and de-pressurising at unloading. In any case, US
natural gas exports cannot automatically replace Russian gas
owing to the time it would take for US export terminals to be
built.
“Instead, American gas will
flow mainly to Asia (...) The most useful thing that Europe
could import is not American gas itself but the open economic
model that has enabled the US natural gas industry to
thrive,” suggested a recent article in the Financial
Times.
On 18 July this year, oilfield
service provider Schlumberger Ltd, which drills with Rosneft,
Russia’s largest oil producer, on the island of Sakhalin,
said there was no “real impact” on its business in
Russia, two days after the US slapped sanctions on Rosneft and
Novatek, the country’s second-largest gas producer, over
Moscow’s role in the Ukraine crisis. Schlumberger had
signed an agreement with Russia and Gazprom Neft earlier in
2014 to collaborate on technology for the planned Bazhenov
shale development project in the Priobskoe oilfield in Western
Siberia.
A few days later, US President,
Barack Obama immediately followed a European action by
announcing a new round of US measures that he said will affect
“key sectors of the Russian economy.”
President Obama also expanded the
list of US-sanctioned banks and defence companies. The US and
Europe banned exports of technology for use in Russian
deepwater, Arctic and shale oil exploration. Later on, it was
specified that actions will be directed against Russian oil,
not gas.
Meanwhile, the Louisiana Cameron
Parish terminal obtained a permit to export natural gas. More
significantly, the Commerce Department opened the door to more
US oil exports as long as the crude is lightly processed (in
so-called condensate splitters that turn a super-light oil
called condensate into products such as naphtha, used as a
petrochemical feedstock), tempering the impact of a law that
has banned most overseas petroleum shipments for the past four
decades. The department widened its definition of what had
traditionally been considered a refined product, eligible for
shipping to customers abroad. That means more of the oil being
pumped from US shale formations may be eligible for export
after being run through small-scale processing units.
Canada
It was said earlier in this report
that the US and Canada are the only major producers of tight
oil in the world. Shale gas development in Canada is more
recent and has been proceeding more slowly than it has in the
US. Until now, development has been concentrated in British
Columbia and, to a lesser extent, Alberta. Shale gas resources
are also known to exist in Quebec, New Brunswick, and Nova
Scotia, and are likely to be found in other regions.
In July 2014, Northern Rockies
Regional Council in British Columbia sent a letter to federal
and provincial governments regarding hydraulic fracturing
(fracking), where it said that, “hydraulic fracturing is
currently the only viable method of accessing shale gas, which
is essential for the economic prosperity and energy security of
our community and all of British Columbia.”
Mexico
The Ministry of Energy in Mexico
has estimated that a $100bn investment is needed over the next
10 years to develop Mexican shale resources.ÊSome sources
have mentioned figures closer to $250bn.
Smaller companies will probably
dominate the development of Mexico’s shale gas deposits as
Petroleos Mexicanos (Pemex) focuses on shallow water and
onshore projects, according to the independent director of one
of the state-owned company’s units. While Pemex has only
invested approximately $250m in Mexico shale gas exploration
and production, foreign companies will not drill new wells or
bring the required investment until clarity from the Mexico
energy reform process takes place later this year, or during
the first quarter of 2015.
Even once the Mexican government
clarifies how foreign investment will be allowed to take
ownership of shale gas assets in the country, the exploration
process will not be easy. Infrastructure is needed for the oil
and gas industry to flourish in the northern part of
Mexico.
A package of nine initiatives,
including eight new laws and modifications to 12 others on
fossil fuels, water, electricity and oil funds, came before the
senate in the last week of June, after being debated by the
Energy Commission.
The new legal framework for
Mexico’s oil industry has not placed controls on the use
of harmful chemicals in the extraction of unconventional fossil
fuels, and environmentalists and experts fear their consumption
will increase in an industry that is opening up to private
capital.
The energy reform, “will
exacerbate the use of chemicals. The new laws do not address
this problem. We need to know what is used, because otherwise
we cannot know the consequences. That’s why we want a ban
on hydraulic fracturing,” activist Claudia Campero, of
Canada’s Blue Planet Project, told IPS.
In July 2014, it was announced that
shale gas development in Mexico will involve the Japanese
government, with plans to begin importing cheap natural gas
into Japan in the mid-2020s. Japan’s Prime Minister,
Shinzō Abe, and Mexico’s President, Enrique Pe–a
Nieto, were expected to reach an agreement to strengthen
bilateral energy cooperation.
Mexico is home to the world’s
sixth largest shale gas reserves and the 18th
largest petroleum reserves.
Historically, state-owned companies
have held a monopoly on oil and natural gas businesses in
Mexico, however, in the wake of a drop in production due to
financial difficulties, the country revisited its constitution
at the end of last year to allow overseas companies to
participate in energy development. Prime Minister Abe
reportedly hopes to take on the role of Japan’s top
salesperson in order to seize that opportunity and make Japan
the first foreign country to join Mexico’s shale gas
development project. In addition, the Japan Oil, Gas and Metals
National Corp. and Pemex are to sign a memorandum on
cooperation on technical development in gas businesses and
human resource development, according to sources.
Beyond North America
“The unconventional supply
revolution that has redrawn the global oil map will likely
expand beyond North America before the end of the decade,”
the International Energy Agency (IEA) reported in its annual
five-year oil market outlook, released in June 2014.
The Medium-Term Oil Market Report
2014 also sees global oil demand growth slowing, stating:
“OPEC capacity growth is facing headwinds, and growing
regional imbalances in gasoline and diesel markets (...) and
that while no single country outside the US offers the unique
mix of above-and-below-ground attributes that made the shale
and light, tight oil (LTO) boom possible, several countries
will seek to replicate the US success story.”
The report projects that by 2019,
tight oil supply outside the US could reach 650,000 barrels per
day (bpd), including 390,000 bpd from Canada, 100,000 bpd from
Russia and 90,000 bpd from Argentina. US LTO output is forecast
to roughly double from 2013 levels to 5m bpd by 2019.
Ageing fields are an issue for
almost all OPEC producers, but above-ground woes have
escalated; security concerns are a growing issue for several
producers and investment risks have deterred some international
oil companies.
The IEA’s report notes that as
much as three-fifths of OPEC’s expected growth in capacity
by 2019 is set to come from Iraq. The projected addition of
1.28m bpd to Iraqi production by 2019, a conservative forecast
made before the launch at the beginning of an August military
campaign by insurgents that subsequently claimed several key
cities in northern and central Iraq, faces a considerable
downside risk.
The annual report sees global
demand rising by 1.3% pa to 99.1m bpd in 2019. Yet the report
also expects the market to hit an inflexion point, after which
demand growth may start to decelerate due to high oil prices,
environmental concerns and cheaper fuel alternatives. This will
lead to fuel-switching away from oil, as well as overall fuel
savings. In short, while peak demand for oil, other than in
mature economies, may still be years away, and while there are
regional differences, peak oil demand growth for the market as
a whole is already in sight.
Given planned refinery construction
and the growth in supply that bypasses the refining sector,
such as natural gas liquids (NGLs) and biofuels, the refining
industry faces a new cycle of weak margins and a glut of light
distillates like gasoline and naphtha as a by-product of needed
diesel and jet fuel.
Geopolitics
Russia is known to have vast
supplies of natural gas. In 2006 and 2009, Gazprom, the
world’s largest natural gas extractor, cut off supplies to
Ukraine, for the second time, and this created shortages in
Europe. In 2010, it reduced supplies to Belarus, and last
autumn Russia threatened Moldovans with the same if they did
not abandon plans to sign a free-trade accord with the EU.
After the crises of 2006 and 2009,
Europe increased imports from Norway and Qatar. It built new
facilities for receiving LNG and upgraded storage capacity so
that supplies could be stockpiled in case of a cut-off, as well
as importing more coal. Pipeline connections within the EU were
improved, making shortages easier to alleviate. The Crimea
crisis will give new impetus to these efforts.
In April 2014, Russia filed a
dispute with World Trade Organization (WTO) against the EU,
which could further sour that relationship, risk the security
of Europe’s supplies of gas and oilfield minerals from
Russia and curtail Russia’s own imports of these
materials.
According to Russia, the EU’s
Third Energy Package is inconsistent with obligations it signed
up to in the General Agreement on Trade in Services (GATS),
which is a treaty to remove trade barriers among WTO
members.
As IM has pointed
out, as well as being a major supplier of gas to Europe, Russia
is also an important source of oilfield minerals such as
bauxite-based ceramic proppants for fracking from companies
like JSC Borovichi Refractories, supplies of which are crucial
to the development of Europe’s shale gas industry.
Heightened tensions could also
affect the distribution of Russian-produced bentonite, a clay
used for conventional drilling muds in oil and gas
drilling.
Crimean
hydrocarbons
In taking Crimea, Russia gained a
sea of fuel reserves by extending its maritime boundaries,
quietly giving it dominion over vast oil and gas reserves while
dealing a blow to Ukraine’s hopes for energy independence.
Russia did so under an international accord that gives nations
sovereignty over areas up to 230 miles from their shorelines.
It had tried, unsuccessfully, to gain access to energy
resources in the same territory in a pact with Ukraine less
than two years earlier.
In Moscow, a spokesman for
President Vladimir Putin said there was “no
connection” between the annexation and energy resources,
adding that Russia did not even care about oil and gas.
“Compared to all the potential
Russia has got, there was no interest there,” the
spokesman, Dmitry Peskov, said.
Exxon Mobil, Royal Dutch Shell and
other major oil companies have already explored the Black Sea,
and some petroleum analysts say its potential may rival that of
the North Sea. William B. F. Ryan, a marine geologist at the
Lamont-Doherty Earth Observatory of Columbia University, said
that Russia’s Black Sea acquisition gave it what are
potentially “the best” of that body’s deep oil
reserves.
In April 2014, France’s Total
obtained rights to explore three hard-to-recover Russian shale
oil areas, joining other majors, ExxonMobil, Statoil and Royal
Dutch Shell, to develop the energy source, which is a key
driver in Moscow’s efforts to at least maintain its oil
output at approximately 10m bpd.
Interestingly, a month later,
Russia’s Lukoil announced plans to drill for tight gas in
Saudi Arabia in early 2015 after a decade-long hunt for
conventional deposits that had proved futile. The world’s
top oil exporting nation invited international oil companies
(IOCs), such as Lukoil, Royal Dutch Shell and Sinopec, to find
and pump gas in its southeast Empty Quarter, known as Rub al
Khali, more than 10 years ago. Natural gas would help Saudi
Arabia cover subsidised domestic power demand so it can save
oil for more lucrative exports.
On 25 May this year, BP confirmed
its commitment to Russia after signing a shale oil deal with
state-owned oil company Rosneft, despite US government-led
sanctions against Moscow and the company’s CEO. The
contract was signed at the St Petersburg International Economic
Forum by Rosneft boss, Igor Sechin, as President Putin looked
on.
In June, BP’s CEO said in
Moscow that, “Sanctions have had no impact on working in
Russia yet.” Russia faces a dilemma to maintain output
from Soviet-era oil fields and develop Arctic and shale
reserves; it still needs Exxon Mobil, Halliburton and BP to
provide modern drilling and production gear, as well as
techniques such as fracking.
A revealing interview by Konstantin
Simonov, general director of the Russian National Security Fund
in the Greek newspaper Kathimerini on 27 July 2014
summarises Moscow’s point of view:
“This winter there is the
possibility of disruption of the flow of natural gas due to
Ukraine - and again it is Russia that will be blamed (...) I do
not support that Russian policies are entirely correct - we
could have been more flexible with prices and given even higher
rebates, especially to SE European countries as this is where
Brussels think we are acting monopolistically (...) However,
the EU has set the strategic goal of reducing the role of
Russia and is obstructing the South Stream pipeline that would
bypass the Ukraine. Furthermore, the EU had hopes of developing
shale gas in Europe but later on it decided this was
impossible. Instead of recognising their mistake, EU
bureaucrats now base their hopes on shale gas imports from the
US, again with the aim of blocking Russia - i.e. with political
but uneconomic objectives.”
Ukraine
Ukraine has possibly the biggest
shale potential on European soil, as shown in Fig.2.
According to Robert Bensh, an energy and energy security expert
who has worked in Ukraine for over 13 years, “With Crimea,
Ukraine loses some prospective offshore oil and gas territory
in the Black Sea, but it does not lose any shale. All the shale
is in Ukraine’s east and west.”
In June 2014, Royal Dutch Shell
announced it has halted drilling for shale gas in eastern
Ukraine to protect its personnel from clashes between
pro-Russian separatists and the Ukrainian army. “Shell is
taking a ‘time-out’ on exploration work after
drilling two wells since the Hague-based explorer signed a
production-sharing agreement last year,” the
company’s chief financial officer, Simon Henry, said.
Both Shell and Chevron signed
production-sharing agreements with the previous Ukrainian
government, headed by ex-President Viktor Yanukovych, promising
to spend hundreds of millions of dollars on shale and tight-gas
exploration.
European shale potential
Even though direct extraction of
oil and gas from the source rock is currently only actively
developed in America [US, Canada and Argentina], European
nations have the geological capabilities to develop shale
resources too. Rystad Energy has identified more than 40
prospective shale formations within 20+ basins in Europe, which
fulfil the early geologic requirements for shale
development.
Some shale development efforts have
already been reported in Poland, with limited results.
Meanwhile, exploration plans have been reported in the UK and
Ukraine. Rystad Energy has identified 40+ prospective shale
formations in Europe that satisfy early geologic requirements
for shale development. Fig.2 shows economically
recoverable shale resources for the 10 most promising shale
holder countries in Europe, split by gas and liquids (including
light oil and NGL).
The EU has delegated public policy
decisions regarding fracking to member-states. There is a
moratorium in France and Bulgaria and parts of Spain, as well
as considerable difficulties in Germany. The German Federal
Environment Ministry and the Federal Ministry of Economics have
agreed on common core principles for the regulation of
fracking, the position of the ministries being that fracking
for shale and coalbed methane will not be allowed for economic
purposes in the foreseeable future.
The UK
The UK government has announced it
is to shorten permitting times for shale gas drilling sites
from 13 to two weeks, effective later this year. The move is
the latest in a number of steps recently taken by UK
authorities to promote domestic shale gas exploration.
“The [UK] government is
committed to exploring the potential of shale gas to create
growth, jobs and energy security,” a Department of Energy
and Climate Change spokesperson told IM.
More importantly, in a speech
setting out the government’s legislative plans for the
next year, Queen Elizabeth II said a bill would be proposed to
“enhance the UK’s energy independence and security by
opening up access to shale and geothermal sites.”
Today, companies planning to drill
onshore need to obtain consent from every landowner whose
property a well may pass under. The government said the new law
will remove the need for this permission. Drilling for shale
often involves horizontal wells that run for hundreds of meters
and can pass under several different properties.
Lastly, on 28 July, the British
government published details of the bidding processes for
onshore oil and gas licences, referring to shale gas as a
central instrument for its energy strategy.
“Unlocking shale gas in
Britain has the potential to provide us with greater energy
security, jobs and growth. We must act carefully, minimising
risks, to explore how much of our large resource can be
recovered to give the UK a new home-grown source of energy. As
one of the cleanest fossil fuels, shale gas can be a key part
of the UK’s answer to climate change and a bridge to a
much greener future,” Business and Energy Minister,
Matthew Hancock, commented.
The government has also published
online planning guidance, a regulatory roadmap and an
illustration of onshore licences. More than half of the country
will be open for bids. In the words of the Guardian:
“Fracking push gets go-ahead across UK as ministers
tighten safeguards. Drilling will be allowed in
national parks in ‘exceptional circumstances’ but
ministers retain power to veto plans.”
Poland
On 11 June 2014, the lower House of
Parliament in Poland passed the hydrocarbons bill, facilitating
exploration and extraction of unconventional resources by
introducing a single exploration and extraction permit.
“A single permit for
exploration and extraction will replace three separate permits
required presently,” the government’s press office
said when the bill was approved by the cabinet in March
2014.
As a rule, permits will be granted
for the period of 10-30 years. Other solutions include
facilitating the procedure of granting environmental permits
and limiting documentation requirements.
In the words of legal firm Baker
McKenzie, “Both Poland’s infrastructure and public
opinion largely support the country’s development of its
shale resources. However, its shale industry is still at an
exploratory, pre-commercial phase with shale gas operations
slowing following the discontinuance of some international oil
companies’ shale explorations in Poland. Possible
investors in Poland’s shale resources are carefully
watching the government’s draft law on shale gas
exploration and extraction.”
As for individual companies, in the
spring of this year, Chevron Polska and Poland’s PGNiG
signed an agreement to explore shale gas together in the
south-east of the country. On the contrary, a few days later,
France’s Total had not renewed its only shale gas
exploration licence in the country, highlighting the problems
Warsaw faces in reducing its reliance on Russian energy. The
company said that despite the presence of gas, it had concluded
the area it was exploring in eastern Poland near the Ukrainian
border was not economically viable. In a potential turnaround,
energy firm San Leon hailed the first successful shale test in
Poland in January and said the use of ceramic proppants was
vital to achieving it.
Spain
Spain is Europe’s
fifth-largest energy consumer and has practically no production
of liquid fuels and natural gas. This explains why Spain has
silently crept up alongside Poland and the UK as one of the EU
Member States open to shale gas exploration.
The central government, led by
Prime Minister Mariano Rajoy, has repeatedly stressed its
support for shale gas development as a way to spur growth and
job creation in a challenging economic environment. According
to the Spanish Oil & Gas Association, ACIEP, there are
currently about 70 exploration permits (for different types of
hydrocarbons) in force and a further 75 awaiting authorisation.
The number of permits requested and granted has gone up by 80%
in the last five years.
In March 2013, Gessal Consultants
undertook a comprehensive preliminary evaluation of prospective
conventional and unconventional hydrocarbons; 2bn barrels of
oil and 2.5bn cubic metres of natural gas of which 80% could be
found in shale rock.ÊMost shale gas reserves are located
in the Basque-Cantabrian basin in the north of Spain, namely
the provinces of Alava in the Basque Country, Burgos in
Castilla y Leon and the autonomous community of Cantabria.
A year later, Deloitte published
the results of another study, this time on the economic impact
of hydrocarbons in Spain. The research, commissioned by ACIEP,
and based on the estimates outlined by Gessal, assesses the
impact of the exploration and development of conventional and
unconventional hydrocarbons, including shale gas, on gross
domestic product, job creation and imports and exports. Among
other findings, the report highlights that, under the baseline
scenario, the exploitation of natural gas could allow Spain to
become completely independent of gas imports by 2030 and an
exporter of natural gas until 2050.
The findings of both reports need
to be verified on the ground through exploratory drilling; no
exploratory operations have started as yet.
Responding to criticism from
autonomous communities - such as Cantabria or La Rioja, which
have adopted laws to ban the use of fracking in their
territories - a new environmental law entered into force in
December 2013, which included a mandatory environmental impact
assessments for all shale gas projects, including
exploration.
A note on
proppants
On the back of shale advancements,
proppants are becoming a growing business, especially in North
America. Frac sand remains the most widely used proppant by
volume with resin-coated and ceramic proppants making up for
rest of the market.
Frac sand
Some major US frac sand producers
are developing new mines, while others are facing problems.
Noise pollution, health and environmental concerns have delayed
US frac sand developments in recent years as operations ramp up
in line with a growing fracking industry:
- US Silica Holdings, Inc. has
received approval to begin development of a new 3m tpa frac
sand mine and plant in Fairchild, Wisconsin, to be served by
the Union Pacific Railroad. It is anticipated that it will
become operational by the fourth quarter of 2015.
- Eagle Materials
gained final approvals for its frac sand mine in
Utica, Illinois, after having faced opposition to the mine in
2011 owing to a lack of information regarding increased truck
traffic. The company is hoping to make the first frac sand
shipment to its 1.5m tonne processing facility in Corpus
Christi, Texas, no later than its fiscal third quarter, which
ends in March 2015.
- Superior Silica has faced
difficulties at its Minnesota frac sand facility owing to
concerns over truck traffic. This has now led to project
cancellation.
- The Winona City Council may hear
a city committee’s set of recommendations on frac sand air
monitoring after all, despite the plan getting hung up earlier
in a different committee. The Citizen Environmental Quality
Committee made a list of recommendations for air monitoring
that has bounced back and forth between the committee and the
city’s planning commission for some time, because the
commission declined to recommend sending it along to the
council. A group opposed to frac sand mining, Citizens Against
Silica Mining, approached the environmental committee to
request recommendations be sent straight to the council,
arguing that a citizen group can call on council members to
address an issue without planning commission input.
Frac sand
prices
Frac sand prices in the US have
been increasing in recent months. For example, US Silica saw
oil and gas revenue climb 92% on increased frac sand prices,
which the company announced in Q1 this year on the back of high
demand coming from oil and gas producers using more proppants
per well.
“Prices are expected to
continue to rise by ‘double digits’,” US
Silica’s CEO, Bryan Shinn, said, adding, “We raised
prices in late Q1 and then again in Q2 (...) we are in the
double digit range for the rest of the year when we look at the
price increases. The prices were buoyed by an increase of
demand for 100 mesh frac sand, above other grades.”
Shinn also said that there was a
possibility that 100 mesh could have been slightly depressed,
but the demand for the grade has been high in any case.
Houston-based frac sand producer,
Hi-Crush Partners LP, saw second quarter earnings increase to
$83m, up from $38m in Q2 2013, as the company sold higher
volumes of frac sand due to a lower cost of production. Revenue
for Q2 2014 increased by 120% year-on-year (y-o-y) to $83m
owing to sales of over 1m tonnes frac sand; a 67% increase
y-o-y and a 14% increase quarter-on-quarter (q-o-q). Jim
Whipkey, co-CEO, emphasised that since the start of 2014, the
company has announced eight new contracts or contract
amendments, five of which were in the second quarter.
Frac sand
logistics
Wisconsin’s boom in the
production of sand used for fracking has fuelled a large
increase in rail traffic, moving the commodity to other states,
causing conflicts and raising safety concerns. While the number
of Wisconsin car-train accidents has remained relatively steady
in recent years (derailments are actually down) some residents
who live near train tracks used for transporting sand,
primarily in western and north-western communities, complain
about noise and traffic delays in addition to safety
worries.
Rail transportation of frac sand is
fuelling another increase in train traffic in Wisconsin. The
Associated Press and the La Crosse Tribune,
citing newly released figures, reported that 36 trains loaded
with flammable crude oil extracted by fracking now rumble
through the state every week.
Ceramic
proppants
Global minerals giant Imerys saw
profits rise as new ceramic proppant production came on stream,
with results underlining the profitability of the
company’s energy business, which includes the US proppant
PyraMax plant acquisition. Imerys announced it had acquired the
plant through the purchase of PyraMax Ceramics LLC, an
industrial complex for manufacturing ceramic proppants, built
in Wrens, Georgia, US, with two production lines to be
gradually ramped up in the course of 2014 for a total annual
capacity of approximately 225,000 tonnes. Investment will total
$235m, to be potentially increased by the end of 2014 with
additional amounts not to exceed $100m.
Meanwhile, Carbo Ceramics Inc., a
leading proppants producer, has reported increased y-o-y
revenue for Q2 2014, reflecting continued growth in the US
fracking market. Quarterly revenues hit $176.6m, up from
$153.7m in Q2 2013. Revenue was also up q-o-q from the $148.6m
recorded in Q1 this year, a period that was affected by adverse
weather conditions. The 15% revenue growth in Q2 can be
attributed to an increase in proppant sales volumes, aided by
Millen Line 1, which commenced production during Q1 and is
currently ramping up to full capacity, which is expected to be
reached by the end of Q3. Once full capacity is realised, Carbo
Ceramics will have a total annual capacity of 2bn lbs (907,184
tonnes).
Poland’s Baltic Ceramics
Investments (BC) is issuing shares to help fund the
construction of a factory that will produce ceramic proppants
as part of a developing supply chain for Eastern Europe’s
shale gas sector.
“We will have the first such
factory in the EU,” Dariusz Janus, head of IndygoTech
Minerals, the holding company controlling BC, told
Reuters.
BC wants to have the factory up and
running during the second half of 2015. It has made successful
tests of its product in the US and is ordering equipment for
the factory. The company has received $11m from the EU’s
structural funds, a further $4m from Poland’s public funds
for boosting innovation and is currently issuing $3.4m in
shares to complete financing for the project.
BC aims to produce 135,000 tpa of
proppants, which is approximately 5% of global demand. It says
it owns deposits of enough raw materials to cover up to 80
years of production.
“We have already received
inquiries about our product from firms looking for shale gas in
Poland, Romania, Ukraine and Britain,” Janus said, adding
that BC’s key advantage is its location in Poland, which
will allow it to provide operators in Europe with ceramic
proppants significantly faster and cheaper than firms such as
Carbo Ceramics or Imerys, which produce proppants in the
US.
A large worldwide supplier of
bauxite proppant is Mineracao Curimbaba, Ltda. in Pocos de
Caldas, Minas Gerais, Brazil. Its SinterBall Bauxite was
originally introduced in the industry in 1988 and through the
years it has undergone several developmental generations.
*Vasili Nicoletopoulos and his consulting company Natural
Resources GP, www.naturalresources.gr, specialise in mining and
energy. Vasili has written and lectured extensively on shale
and proppants in the US, the EU and China. NR is offering the
extensive study ‘Hydraulic Fracturing & the Growth of
Shale Gas/Oil Internationally’. Mrs Maria Kalaitzaki has
assisted in the preparation of this article.