Ceramic challenge: why synthetic proppants have it tough

By Emma Hughes
Published: Friday, 20 March 2015

Ceramic proppants have long faced stiff competition from their cheaper, more readily available silica (frac) sand counterparts. Now, with oil prices tumbling and hydrocarbon extraction costs rising, manufacturers are experiencing some of the toughest market conditions yet, with some forced to close operations until conditions recover.

In contrast to the booming frac sand industry, there are relatively few established world suppliers of ceramic proppants. The main regions include China, which is the largest producer with numerous companies and plants; the US, which has three main producers; Russia, with two producers; and Brazil, which has one.

The reason for this concise group of producers is twofold. First, while frac sand can be dug up, processed and is ready to go, ceramic proppants are made via a far more complex manufacturing process. Second, ceramic proppants are expensive – in fact they can command prices between $489-1,630/tonne – compared to prices of around $100-170/tonne (FOB) for frac sand.

Despite these drawbacks, ceramic proppants still have clear advantages over frac sand. Looking at current trends, the technique of increased frac sand proppant loading may not be sustainable in the long term. On top of this, some high-pressure, high-temperature wells are simply not suited to the use of frac sand and, as a result, demand for ceramics may increase in future.

Oil price impact

At present, however, ceramic proppants have it tough.

Plummeting oil prices, which have been affecting the unconventional oil and gas industry since June last year, have yet to show any signs of recovering, forcing US-based ceramic proppants producers to reconsider short-term action.

Carbo Ceramics, which has in recent years expanded operations in the US, made the decision to mothball one of its manufacturing plants in early March 2015.

The company is also managing output from its other proppant facilities and has revealed plans to cut its workforce and quarterly dividend as part of an overall cost-reduction and cash preservation initiative.

Carbo attributed all of these measures to “severe market deterioration”.

Imerys SA, the world’s largest industrial minerals group, has also had to make changes as a result of low oil prices.

The company’s Oilfield Solutions business is to close two of its proppant manufacturing plants in the US and reduce output from another after orders were slashed in response to oil prices.

“The market had a sudden turnaround at the end of 2014 [because of the] drop in oil prices (…) when our own business was expected to pick up (…) we have to make adjustments, we are doing this; these are necessary adjustments in terms of production,” explained Gilles Michel, Imerys’ CEO.

Frac sand producers, meanwhile, are yet to feel any real impact.

In January, the Department of Natural Resources (DNR) in Wisconsin, US, said that there has not yet been any indication of a slowdown in frac sand demand.

Due to the nature of frac sand supply agreements, many customers are already tied into contracts into 2015. On top of this, new completion techniques, demanding significantly higher proppant volumes per well, were gaining widespread commercial use in 2014 as yield rates increased dramatically.

“Advancements in drilling and hydraulic fracturing technology will mitigate slowing demand to a degree,” said rating agency Moodys in a January report.

“Against a backdrop of falling [crude benchmark West Texas Intermediate], energy companies will continue to use more sand per well to improve their production,” it added.

Generally speaking, until recently between 1,000 tonnes and 3,000 tonnes proppants have been used to frack one unconventional well. 2014 was something of a tipping point in the US, with 8-10,000 tonnes sand per well becoming commonplace.

Longer-term challenges

While the low oil prices are without doubt affecting ceramic proppant manufactures in the short term, there are other factors that explain why there are so few producers worldwide in comparison to frac sand.

Key to the production of ceramic proppants is the consistent supply of quality raw materials, namely bauxite and/or kaolin.

While global bauxite reserves are estimated to be 55-75bn tonnes, some reviews report that bauxite reserves face a strategic challenge because the US, which is the world’s largest proppants market, possesses few untapped domestic sources and relies on imports.

Best case scenarios estimate development of new bauxite reserves is almost a decade away and even then, it is not likely to meet domestic needs. Therefore, the ability to manufacture high-quality proppants from a broad array of alternative raw materials, indigenous to the site of deployment, offers significant strategic benefit.

Abrasive-grade bauxite has been the favoured specification for ceramic proppant manufacture. Typical specifications of a raw abrasive grade bauxite are min. 55% Al2O3, max. 5.00% SiO2, max. Fe2O3, and min. 2.50% TiO2. Calcination of raw material would normally increase alumina content to 70-85% Al2O3, depending on raw material and calcining conditions.

Kaolin, on the other hand, is both produced and consumed in the US. Growing demand for ceramic proppants allowed the kaolin market to see fast growth in North America, propelled by an increase in the drilling of high-pressure, high-temperature wells, where frac sand proppants are unusable.

The ceramics market for kaolin is expected to continue to report above-average growth through 2017.

Prices and processing

Ceramic proppant raw materials – predominantly bauxite and kaolin – coupled with the energy-intensive manufacturing process, are what is behind the high cost of ceramic proppants when compared to frac sand alternatives.

The average unit of US kaolin production was $151/tonne in 2013, an increase from $146/tonne in 2012. The average value of imported kaolin, however, was $203/tonne in 2013, compared with $120/tonne in 2012.

In 2013, values for imported non-refractory-grade, calcined bauxite from the principal sources ranged from $56/tonne from Australia, to $65/tonne from Greece.

Consumption of non-refractory-grade, calcined bauxite was expected to increase in 2014 with further use in abrasives, cement and hydraulic fracturing (fracking).

Ceramic proppants are produced using the following process: raw material selection, crushing, grinding, mixing, pelletising, drying, screening, sintering, cooling, final screening and bagging.

Frac sand, on the other hand, can be processed using far simpler methods, most of which are used to separate the correct grade. This includes making use of shaker tables, sieve/screen separation to size range, acid treatment to remove carbonates and magnetic separation.

High silica content sand, sphericity, roundness and crush resistance are the key factors in seeking a good frac sand.

Ceramic proppant processing
Source: GDGC


Market share

As a result of these factors, the frac sand market far outweighs ceramic proppants.

US requirements 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.

Resin coated sand and ceramic markets could decline to 2016 at 5% and 17% a year respectively, but supply of all proppant types could increase moderately over 2015-2016.

However, the prices of oil and gas will be the critical factor.

You can find out more about the US ceramic proppants market, and how low energy prices are affecting demand, in IM Research’s latest report, US Proppants Market: Raw Material, Supply & Consumption

Homepage image shows Carbo Ceramics' KRYPTOSPHERE proppant. Source: Carbo Ceramics.

Click here to download the pdf file.