Hydraulic fracturing – colloquially know
as fracking –
produces fractures in rock formations that stimulate the flow
of natural gas or oil, increasing the volumes that can be
recovered. Wells may be drilled vertically hundreds to
thousands of feet below the land surface, may extend 1-6,000ft
(304-1,828 metres) away from the well and may include
horizontal or directional sections extending thousands of
feet.
Fractures are created by pumping large quantities
of fluids at high pressure down a wellbore and into the target
rock formation. Fracking fluid commonly consists of water,
proppants and chemical additives that open and enlarge
fractures within the rock formation. The proppants –
sand, ceramic pellets or other small incompressible particles
– hold open the newly created fractures.
Proppants play an integral role in the fracking
process. As the name suggests, proppants serve to prop open the
fractures created in the process of pumping pressurised fluid
into the well bore. Without them, the closure stress from the
weight of the rock above would quickly close the cracks and
prevent the extraction of petroleum fluid.
Evidently, proppants must be able to withstand
considerable pressure and must be durable. If the external
pressure of the crack is too great, it crushes the proppant
into small grains called "fines", which clog up the cracks and
impede fluid extraction.
Other important characteristics of proppants are
shape and size, which also play a factor in conductivity.
The three basic types of proppant are ceramic (sintered
bauxite, alumina, kaolin), sand (sorted silica sand, known as
frac sand) and resin-coated (ceramic or sand).
Ceramic proppants comprise three groups:
lightweight, intermediate density and high density. The
performance of ceramic proppants varies greatly both by
composition and manufacturer; however, numerous ceramic
proppants have been used in the Bakken Formation that are
advertised to withstand closure stresses of 6,000-14,000
psi.
Frac sand is typically divided into two types:
white sand and brown sand. White sand, the stronger of the two,
is typically sourced from the St Peter’s Sandstone
in Ottawa, Illinois, while brown sand is sourced from the
Hickory Sandstone near Brady, Texas. Frac sand is typically
used in environments below 6,000 psi.
Resin coating of sand does not increase strength
properties; however, resin-coated sand (RCS) is a popular
proppant choice because of better consolidation, which reduces
flowback and provides for better stress distribution across the
proppant pack. Resin coating ceramic proppant provides similar
performance enhancements.
In shale gas wells, a multi-stage frac would
commonly involve between 10 and 20 stages, multiplying the
volumes of water and solids by 10 or 20, and hence the total
values for water use might reach from a few thousand to up to
20,000 cubic metres per well and volumes of proppant of the
order of 1,000 to 4,000 tonnes per well.
Figure 1: Frac sand macro
comparison
|
|
Close-up view of frac sand
(on the right) and a typical
sand of similar grain size (on the left).
Source: iStock
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Global proppants market
While most of the proppant spending will take
place in the Americas, and in the US in particular, annual
growth rates for other nations and regions are more aggressive.
The unconventional oil and gas boom is expected to spread
across the globe over the next 10 years.
Of particular note are the proppants markets in
Argentina, throughout the Americas and in China. These nations
and regions have extensive unconventional oil and gas reserves
and the global trend toward natural gas as the dominant
feedstock will ensure significant political and fiscal capital
is spent developing them. Strong global oil prices and, in the
case of markets outside North America, gas prices, further
justify such development and spending.
London, UK-based research firm Visiongain
calculated that the global market for proppants reached $8.85bn
in 2014. Evidently, as well as altering the energy source mix
in North America, the shale gas boom has completely changed the
breadth and depth of the US proppants industry.
It was expected that total US land proppant
consumption for well stimulation would increase from 51bn lbs
(23.1m tonnes) in 2011 to 83bn lbs (37.6m tonnes) in 2015,
equal to a 12.9% CAGR.
At the IM Oilfield Minerals
Outlook conference held in Houston, US, in 2014, Stan Kaplan of
the US Energy Information Administration (EIA) predicted that
North American-produced natural gas will contribute 30% of the
continent’s total energy consumption by 2040.
Figure 2. Shale rock
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Source:
Geology.com
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Outside the North American market,
which is set to continue its growth for some years, the future
potential hotspots for proppant demand look to be Australia,
China, the Middle East/North Africa, Mexico and South America,
depending on investor confidence, political willpower and a
lowering of cost risk.
Proppant production in the rest of the world
accounts for about 20% of global production. However,
production in this region is expected to grow at a higher CAGR
for two main reasons. First, players in low cost manufacturing
destinations such as India and China are expected to multiply
due to the export opportunities to North America. In addition,
fracking is poised to take off in some countries such as Poland
and China.
Production is also expected to commence to cater
for this new demand. The fracking market in the rest of the
world is in its nascent stage and, as the technology finds
wider use, the production of proppants is also expected to take
off.
Proppant production in the rest of the world is
expected to grow from 5.2m tonnes in 2012 to 10.9m tonnes by
2017.
Figure 3. Hydraulic fracturing
process
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Source:
Britannica
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The US and Canada
The "shale revolution," Americans are told, will
fundamentally change the US energy picture for decades to come
– leading to energy independence, a rebirth of US
manufacturing and a surplus supply of both oil and natural gas
that can be exported to allies around the world.
This promise of oil and natural gas abundance is
influencing climate policy, foreign policy and investments in
alternative energy sources. The primary source for these
expectations of future production is the US Department of
Energy (DoE). Each year the DoE’s Energy EIA
releases its Annual Energy Outlook (AEO), which provides a
range of forecasts for energy production, consumption and
prices.
The 2014 AEO reference case projects US crude oil
production to increase to 9.6m barrels of oil per day (bbls/d)
in 2019 and slowly decline to 7.5m bbls/d by 2040, while
natural gas production is projected to grow for at least the
next 25 years and hit 37.5 trillion cubic feet (tcf) per year
in 2040.
Tight oil (shale oil) and shale gas serve as the
foundation for these optimistic forecasts. However, the price
of oil and gas is a determining factor.
North America, which consumes the vast majority
of proppants worldwide, experienced robust activity during the
first two quarters of 2014. Despite significant weather-related
issues during Q1 2014, demand was trending at over 25% of
annualised 2013 demand and well over 50% in select
regions.
Increases of 30% or more in base proppant demand were
expected throughout the remainder of 2014 in North America (as
compared to 2013 annualised demand).
The most notable driver impacting demand is
increased proppant loadings, specifically, larger volumes of
proppant placed per frac stage. The trend of using larger
volumes of finer mesh materials, such as 100 mesh sand and
40/70 sand and ceramics, either on their own or in conjunction
with coarser and more conductive proppant tail-ins,
continues.
Proppant supply also continues to expand. It is
estimated that at least 16bn lbs (8m tonnes) of new annualised
Tier 1 sand capacity alone will enter the market before the end
of 2015. Logistical abilities to handle current demand, most
notably rail, railcar, terminal and truck accessibility, are
constrained. Regional utilisation of Tier 2 and Tier 3 sands
are increasing as a result.
Morgan Stanley has said that exploration and
production (E&P) companies have discovered that if they use
more sand when they frac unconventional shale plays, they are
able to increase the amount of reserves they can extract from
the ground.
Simmons & Company International estimates
that US proppant demand in 2014 is running at an annualised
demand rate of 100-110bn lbs/annum (45.4-45.9m tpa). This is
based on the rig count and anecdotal market commentary on
current service intensity based on Simmons & Company
International’s assumptions for rig activity and
service intensity. The company believes that annualised demand
will increase to a run
rate of 140-150bn lbs (63.5-68m tonnes) during the first half
of 2015 and if oil prices stay in the mid-$90s, then demand
would further increase as more rigs likely get added in the
second half of 2015.
Continual expansion of unconventional oil and gas
development seen over the next decade – most notably
in the US, but also around the globe – will
necessitate steadily increasing proppant sales throughout the
next 10 years.
In the US, proppant sales are primarily driven by
the shale (tight) oil industry, since the natural gas price has
decoupled from the crude oil price, making it more economical
to develop shale oil. However, elsewhere in the world, proppant
sales are underpinned by shale gas development as nations seek
to exploit unconventional gas resources for export purposes or
for the sake of domestic energy security.
Table 1. Canada’s
marketable unconventional gas resources
|
Natural gas from
coal/coalbed methane
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British Columbia
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4
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8
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Alberta
|
27
|
117
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Saskatchewan
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<1
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<1
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Maritimes
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3
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4
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Total
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34
|
129
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Tight gas
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Jean Marie (BC)
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11
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23
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Montney (BC
portion)
|
77
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166
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Other BC
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59
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132
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Cretaceous Deep Basin
(Alberta)
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69
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155
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Total
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215
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476
|
Shale gas
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Horn River
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75
|
170
|
Cordova Embayment
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30
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68
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Colorado Shale
|
4
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14
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Utica
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7
|
42
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Maritimes Basin
|
11
|
49
|
Total
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128
|
343
|
Total unconventional
marketable gas resources
|
376
|
947
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Source: Fraser
Institute
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Canada
According to the Canadian Society for
Unconventional Gas (CSUG), "Marketable resources for shale gas
in Canada are estimated to range from 700-1,300 tcf of natural
gas". For context, the National Energy board estimates that
marketable natural gas for all of Canada in 2013 was
approximately 0.17 tcf.
At around $3.57/1,000 cubic feet (an average
mid-range estimate of gas prices in North America),
Canada’s unconventional gas resources would have a
market value of about $2.5 trillion at the low end, and about
$4.6 trillion at the high end.
Canada controls large discovered unconventional
natural gas formations and reserves, the development of which
carries significant economic promise.
Table 1, which is taken from the CSUG
report, summarises the estimate of Canada’s
potentially marketable natural gas resources by type, province
and geologic formation. A more recent study by the EIA in 2013
examines areas not addressed in the CSUG report and places
Canada’s technically recoverable shale gas
resources at 573 tcf, or 1.7 times CSUG’s upper
range estimate for shale gas. The EIA also estimates that
Canada has 8.8bn bbls of technically recoverable shale oil.
Shale gas potential is highest in Alberta and
British Columbia, where the Montney Formation holds the most
massive shale gas potential.
Fracking in an environment of low energy
prices
The development of unconventional fuels has
benefited from US technological and entrepreneurial
savvy, a favourable institutional environment –
especially regarding land ownership and mining rights
– and the existance of specialised service companies
and favourable logistics.
Less attention has been paid to the equally
important fact that shale oil and gas have thrived in a period
of oil prices around $100/bbl. When this price falls to
$50-60/bbl, a number of fracking operations and projects become
uneconomical and the same happens to proppant
manufacturing.
Addressing this issue, an entire chapter of the
US Proppants Report is devoted to studing how low
energy prices affect (directly or through financing
impediments) the entire value chain of shale oil and gas
developments (pp.50-53).
*This feature serves as an executive
summary of IM’s US Proppants report, written by
Vasili Nicoletopoulos, Business Consultant, Natural Resources
GP. The report is available to purchase from January 2015. To
order your copy or to receive a report brochure please contact
Emma Hughes, Special Projects Editor, on ehughes@indmin.com or
+44 (0) 207 827 6449.