Oilfield Minerals: Year in Review 2014

By Kasia Patel
Published: Wednesday, 31 December 2014

An increase in hydraulic fracturing (fracking) over the past few years means that demand for oilfield minerals has never been stronger. Continued drilling and exploration kept demand high for minerals such as frac sand, bauxite, kaolin, bentonite and barite over the course of 2014.

An increase in hydraulic fracturing (fracking) over the past few years means that demand for oilfield minerals has never been stronger. Continued drilling and exploration kept demand high for minerals such as frac sand, bauxite, kaolin, bentonite and barite over the course of 2014.

SUPPLY SECURITY

North America remained the largest market for oilfield minerals. However, while frac sand continued to be the proppant of choice for most fracking operators in this region and further afield, concerns surrounding its possible environmental and health impacts were raised. 

As awareness surrounding health risk exposure grew, so did the opposition to fracking in several areas of the US, most notably Wisconsin and Minnesota, as well as opposition to frac sand mining and hauling over the course of last year, leading to difficulties in starting up new mines. 

A report by the World Resources Institute (WRI) also warned that water availability could limit shale resource development on every continent except Antarctica, finding that out of the 20 countries with the largest shale gas and tight oil resources, 40% face high water stress or arid conditions.

Concern arose around supply bottlenecks and US suppliers of oilfield minerals, including US Silica Holdings and Hi-Crush Partners, announced they were  developing in-house rail systems to move product from mine to well site. 

In 2014, the fracking boom also created a renewed interest in ceramic proppants and new producers entered, or announced plans to enter, the ceramic proppant market. 

Barite (barytes) supply remained relatively stable over the course of the year, meanwhile, although output from India, the world’s second largest barite producer (1.5m tonnes in 2013), was reported to have ceased by Q4 as mining contracts in Andhra Pradesh are renegotiated. China’s barite exports have decreased in recent years as a result of falling mine output and increased domestic consumption, as the country looks to diversify its energy supply from coal to less-polluting shale gas. Having become dependent on China’s supply, the US barite industry has begun to look for alternative sources of supply.

For bentonite, another mineral associated with conventional and unconventional exploration, supply remained relatively stable over the course of 2014. The biggest news in the industry was the takeover of bentonite producer AMCOL, which was the target of a bidding war between speciality minerals and refractories company Minerals Technologies Inc. (MTI) and French industrial minerals multinational, Imerys. After several months of counter bid after counter bid, US-based MTI finally won the battle and concluded the $1.7bn merger in May.

Towards the end of 2014 Halliburton announced it would buy Baker Hughes Inc. for $34.6bn to create a combined Houston-based global oilfield services provider. Both companies are leading producers and providers of oilfield minerals including bentonite and barite.

MARKET DEMAND

Driving demand in 2014 was an increased focus on unconventional hydrocarbon recovery through fracking and horizontal drilling.

Bentonite and barite have been used as part of the conventional drilling processes for years, but in 2014 the minerals saw increased use in fracking. Demand for proppant minerals – frac sand and those used in ceramic proppants, kaolin and bauxite – also saw an increase in demand last year.

To date, the majority of large-scale shale oil and gas development has occurred in North America. Other countries with the potential to tap unconventional oil and gas resources include China, Australia, Mexico, the Middle East, South America, Europe and Russia. However, technical political, logistical and environmental challenges in these regions have hampered their development, compared to the rapid escalation of the industry in the US.

Elsewhere, the UK government expressed its support for fracking in 2014, which is expected to lead to additional local frac sand demand.

Throughout 2014, oilfield services providers reported consistently high demand and highlighted continued growth in the oilfield sector.

The US’ requirement for frac sand, ceramic proppants and resin-coated versions of each, grew from around 5m tonnes in 2007 to 34.7m tonnes in 2013, a growth trend which continued to be seen throughout 2014. In terms of market split, frac sand remained the most popular choice of proppant, owing to its low cost in comparison to ceramic proppants, as well as its widespread availability.

In 2014, frac sand accounted for around 80-85% of the market share by volume, with ceramic proppants and resin-coated versions taking 10-15%. By value, however, ceramic proppants accounted for around 50% of the market share.

While barite demand continued to be strong, some companies, such as Halliburton, noted that the industry was moving away from bentonite as there are similar performing substitutes on the market.

PRICE TRENDS

The prices of ceramic proppants in North America remained flat over 2014, in contrast to frac sand values which grew steadily over the last year, in part due to demand, although much of this was owing to logistics constraints.

The strengthening of frac sand prices throughout 2014 led to more medium to long term contracts being agreed in what was traditionally a spot price market. Prices are also set to continue rising throughout 2015 as more sand is consumed. 

As oilfield mineral consumption picked up in Europe in particular, prices for barite saw increases from Turkey and price rises were also expected from India, although in October US importers said that it was impossible to obtain drilling grade material from India as State-run Andhra Pradesh Mineral Development Corp. (APMDC) missed its 1 July deadline to complete a tender process for mining rights and production in the country was believed to have ceased temporarily. Barite prices from other regions, including China and Morocco, were believed to be broadly stable.

MARKET OUTLOOK

As the global energy landscape changes, demand for traditional oilfield minerals such as barite and bentonite, as well as the minerals used in unconventional exploration, is expected to increase as in the majority of cases, there are no reasonable substitutes for these minerals.

World natural gas production, according to the US Energy Information Administration (EIA), is likely to increase by 1.7% every year until 2040. Unconventional gas on the other hand is expected to go up by almost 5% a year between 2010 and 2040, with the majority expected to come out of the US and Canada. Another major growth market for unconventional oil and gas is China, as the country holds the world’s largest reserves of shale gas and has set a national output target of 6.5bn cubic metres by 2015 and as much as 100bn cubic meters by 2020.

However, with oil prices plunging to below $60/barrel in December, the future of higher cost tight oil extraction operations could be in jeopardy in 2015.