US frac sand demand is expected to continue
climbing in 2015 despite falling oil prices, according to
ratings agency, Moody’s.
Frac sand consumption will grow due to continued
hydraulic fracturing (fracking) for unconventional gas and oil
extraction. Demand for proppant used in fracking from
producers US Silica, Fairmount Santrol, Hi-Crush Partners and
Preferred Sands is expected to climb in line with increased
Frac sand demand from these four companies will
likely increase by 50% in 2014 compared with 2013, with growth
also expected in 2015.
"Frac sand demand has increased substantially
over the past year due to advancements in hydraulic fracturing
technology," Moody’s said in in its latest report
on the industry.
"The technology requires a substantial increase
in the amount of frac sand consumed per well, with each rig
drilling more wells, an increase in the number of fracturing
stages within each well, an increase in the length of the
horizontal distance covered in lateral wells, and an increase
in proppant used per foot completed in each fracturing stage,"
US Silica shipped 8.2m tonnes frac sand in 2013,
compared with 7.6m tonnes by Fairmount Minerals and 2.5m tonnes
by Hi Crush. However, orders for 2014 have already been much
higher in volume and contracts are for longer periods.
"Companies have all reported increasing
contractual sand volume and extended term lengths. In fact,
sand producers have indicated contracted volumes in 2014 have
been multiples of previous contracted volumes - in some cases,
up to four times," the report said.
To keep up with demand, firms are investing in
mines to increase production.
US Silica plans to add 3.8m tpa of new capacity.
This comprised expanding the Pacific plant in Missouri by
800,000 tpa by Q3 2015, and developing a new 3m tpa frac sand
mine and processing plant in Wisconsin. The mine is expected to
start production by mid-2016.
Meanwhile, Hi-Crush is expected to increase
production capacity by 3.6m tpa by the end of this year through
expanding its Augusta facility and developing the Whitehall
facility in Wisconsin. Fairmount is also looking at some
greenfield frac sand facilities and said it may expand its
Wedron facility in Illinois.
Shifting to white sand
White frac sand is also becoming the preferred
material over resin-coated sand and ceramic proppants, the
Moody’s report said.White sand is considered the
highest quality frac sand and is mined in Wisconsin, Minnesota
and Illinois. Lower quality brown said is primarily from Texas
Raw white and brown frac sand comprises around
80% of the market and is the cheapest proppant. Early in 2014,
higher oil prices saw a spike in demand for the more expensive
resin-coated sand. This proppant provides more conductivity and
However, after the fall in oil prices, oil
exploration and production (E&P) firms have reduced orders
for resin-coated sand to cut operating costs. Ceramic proppants
are the most expensive, and therefore the most sensitive to oil
Oil prices likely to
The oil price is likely to remain supportive of
fracking, according to Moody’s. It forecast the
WTI US crude benchmark to average $85/bbl through to the end of
2015, which would make shale oil extraction
"Longer-term pricing should remain north of
$80/bbl, primarily due to expected growth in global demand.
This pricing level will support E&P companies’
capital spending pace," it said.
However, Moody’s also warned that
prices falling below $80/bbl for a significant length of time
could signal a contraction in proppant demand. WTI fell to
around $77/bbl this week on ample crude production from the
Middle East and lower demand from emerging economies.
But with the cost of drilling is also falling due
to newer technologies and better fracking experience, which may
mean the breakeven WTI oil price could also fall.
US shale oil production has rocketed over the
last few years. The largest shale oil plays are Bakken in North
Dakota at around 1.2m b/d output and Eagle Ford in Texas at
over 1.6m b/d, according to latest US Energy Information
Administration data. This puts the state on par with Opec
members Algeria and Angola in terms of crude production.
Logistics are also key to frac sand companies. Up
to 80% of the cost of delivering frac sand can be due to
transportation. Transportation routes usually comprise rail,
road, or sometimes barges. Rail was the cheapest due to the
long distances from the mine to drilling site.
"Controlling access to railcars, through
company-owned/leased cars, system cars, or customer-owned cars,
is important in optimising the supply chain,"
"Due to increasing customer and railroad
requests, proppant companies are also seeking to expand unit
train capabilities at processing facilities and at
Frac sand deliveries to E&P firms last winter
were hit by freezing weather, with customers now looking for
suppliers with reliable delivery infrastructure,