|Dark times: Pumping oil in Texas
(source: Jack Odessa)
Attendees at the Oilfield Minerals Conference in Houston,
US, this week disagreed on how long a recovery in the oil and
gas sector might take. However, the general consensus was that
demand for most minerals that supply the drilling industry was
still surpassing expectations.
While Baker Hughes’ director of fluids supply
chain and manufacturing, Jim Vernon, said that the continual
loss of rig count indicates recovery will be slow,
Halliburton’s technology manager, Neil Stegent
noted that "things have stopped heading south".
Some mineral projects have been slowed or put on hold in
response to falling rig counts, but owing to the growth in the
market over the last few years, even if demand falls for
drilling minerals, consumption is still at a historically high
"The outlook for ceramic proppants is weak because of market
conditions," said PropTester Inc.’s vice president
of operations, Ian Renkes.
"However, even if ceramic proppants drop by 50%,
it’s still a larger market than it was 10 years
PropTester, an independent laboratory specialising in the
research and testing of products used in hydraulic fracturing
(fracking) and cement operations, has seen a number of trends
in the industry since 2004.
|Proppant market at 135bn lbs
(source: PropTester presentation at the
Oilfield Minerals conference in Houston,
Among these are a general growth in the proppants market and
an expansion in proppant supply. Silica (frac) sand production
has shifted from a situation where four primary suppliers
accounted for 85% of the market to a new, highly diversified
upstream, with 64 frac sand suppliers in 2014, leaving the four
majors with just 50% of the market.
Ceramic proppant supply, meanwhile, has grown from three
primary producers in 2004 accounting for 95% of the market to
over 40 US and international suppliers carving up the industry.
Resin coated proppant production, which ten years ago was
dominated by just two producers, has expanded to include 15
North American manufacturers.
Proppant pumped, meanwhile, increased more than 15-fold from
8bn lbs (3.62m tonnes) pumped to 135bn lbs (61.2m tonnes)
pumped last year.
According to Renkes, sand has grown its share of the
proppant market, while ceramics have lost ground. Despite this,
growth in the market as a whole means that total ceramics
production and consumption has increased.
"Operators were switching to sand in the downturn because of
its availability. The switch has been made from ceramics
because of economics and subsequently the realisation that sand
was performing in some wells better than anticipated," Renkes
The biggest growth has been in what he calls tier 2
– good, brady type – and tier 3 –
marginal, fit for purpose – sands, as tier 1, which
are premium Northern White sands, have largely been accounted
for in the market.
He added that owing to a number of factors, there have been
shifts in the grades and fineness of proppants used in the
industry, with a large push to begin pumping finer grades as a
result of changing well conditions and other market
"10 years ago, 100 mesh wasn’t even used as a
propping agent, but it’s become more common and
this is, according to my theory anyway, because smaller grains
get further into the fracture," Renkes said. "I think this
trend will continue of using finer grades."
Sand grades have shifted from 20/40 as the primary sand
grade to a mixture of 20/40, 30/50, 40/70 and 100 mesh, while
ceramic proppant demand has shifted from just two products to
Changing techniques to push up sand
As oil prices began to fall
unexpectedly from June 2014 falling from $120/barrel (bbl) to
$70/bbl from June to December 2014, and then to $45-60/bbl in
the first months of 2015, ceramic proppant suppliers began to
feel the effects early in the year.
The world’s largest industrial minerals
company, Imerys SA, announced in February that its Oilfield
Solutions business was to close two of its proppants
manufacturing plants in the US and reduce output at another
after orders for its oilfield products were slashed in response
to falling oil prices. In March, US-based proppants producer
Carbo Ceramics said it would reduce its workforce and cut its
quarterly dividend following "severe market deterioration".
US Silica Holdings, one
of the US’s largest frac sand producers,
recently told Jefferies Equities Research that it expects to
see a 15% drop in sand demand during this year.
"However, changes in completion designs also mean that more
sand is being used, there are more stages to fractures so sand
demand is not exactly directly correlated to rig count one for
one," Renkes noted.
On a comparative basis, Renkes said that 10 years ago, the
majority of wells were vertical or unconventional wells using
gel fluids with single to few stages, while the current trend
of horizontal or unconventional wells with between 12 and 50
stages, using slickwater and hybrids, means that some proppant
demand is likely to be offset.
While Halliburton’s Stegent said that forecasts
from research firm PacWest for total proppant pumped and
frac sand demand were positive for the near future, with
increases for both expected at the start of 2016, he hailed refracturing old wells
as an alternative source of revenue for both oilfield minerals
suppliers and exploration and production companies.
"We can see re-fracks being the
next upcoming thing to help us through this slump," he told
delegates, adding that Halliburton estimates there are up to
5,000 wells with the potential for re-fracking in North
"Re-fracking has been shown to be lower risk, and existing
examples have demonstrated a chance in the EUR and the decline
curve. Costs of re-fracking could be around $2m compared with
$8m for a new well," Stegent said.
|Despite the downturn,
the mood was surprisingly upbeat at this years' Oilfield
Minerals conference in Houston,
Scope for new products
The development of non-standard proppants such as liquids
and synthetics was also discussed briefly in Houston, as well
as the potential for waterless (gel) fracking.
"In the downturn, companies have had time to step back and
really focus on research and development (R&D) of new
products," Renkes said, adding that operators and service
companies have been looking into proppant and fluid
Research companies have also been examining the use of
buoyant proppants or those with a specific gravity (SG) of
Barite still essential
Barite (barytes), of which 90% of production is used in
weighting applications in oil and gas, has also remained
relatively steady in terms of prices and demand, Baker Hughes'
Vernon told delegates.
As with frac sand, analysis carried on barite prices over
the last 13 years has shown that there is a disconnect in the
correlation between barite value and the falling rig count,
with prices resisting drops so far, although Vernon noted that
customers were pushing for discounts as high as 20% in some
However, Vernon conceded that with 90% of all wells around the
world requiring a weighting agent, barite is still
essential to the market, and both demand and prices are likely
to hold out.
Barite, used as a weighting
agent in drilling fluids, provides a mud density of
22lb/gallon, which is a major factor in preventing blow outs
and downhole pressure in the extraction of oil and
Proppant producers in China were also feeling the strain of
lower activity in oil and gas, ChangQing Proppant
Corp.’s president, Viviana Trevino, said.
With proppants accounting for a large proportion of total
expenditure in a typical frack job, Trevino said that end users
were putting pressure on their suppliers to grant pricing
"Operators are asking for cuts and great reductions to their
service companies, and service companies are then looking to
suppliers – of course all of us need to reduce our
costs and prices in this environment," said Trevino.
Challenges faced by the oil and gas industry in China echoed
some of the problems that western producers were having with
operators looking to optimise sustainable production, service
companies seeking new technologies and logistics improvements,
while suppliers were all focusing on the optimisation of the
production process, aiming for "zero fail products".
|Projected energy consumption. Source:
Deloitte via ChangQing
According to Deloitte analysis, China became the
world’s largest consumer of energy in 2010 and the
country’s energy demand growth is estimated at
around 4% compound annual growth rate (CAGR) out to 2020.
However, despite factors such as rapid economic growth,
industrial structure upgrade, urbanisation and inefficient
albeit improving energy use, China is facing a number of
challenges unique to the country with the development of its
shale resources, Trevino said.
She outlined that, in comparison with North America, shale
is deeper while the terrain is more difficult in the country.
Technology additionally needs to be imported at a higher cost
while horizontal well drilling is associated with high risks,
costing around Chinese renmimbi (Rmb) 20m ($3.2m*).
Trevino added that mineral licences and exploration rights
are also monopolised, with a highly consolidated and less
developed pipeline infrastructure.
Water shortages and the use and disposal of fracking fluid
are also hindering fracking developments, and so the demand for
*Conversion made June 2015