For US frac sand miners, 2016 started off badly. Demand for
the product was ebbing away, in a new world of low oil prices.
But the surprising return of the fracking industry resurrected
frac sand miners’ fortunes with it, and 2017
became the year of the supply squeeze. Existing mines were at
capacity, trains into the US fracking basins were fully loaded
with sand, and demand looked insatiable. Now the industry looks
set to change again, with a wave of new sand mines opening
while buyers tear up the rule book on their quality and origin
requirements. The main concern for buyers now is where to
source the most sand at the lowest price.
Frac sand is a key component of the hydraulic fracturing
process. Hydraulic fracturing is a way of stimulating oil and
gas formations to extract trapped oil. Hydrocarbons can be
trapped in pockets inside shale rock formations. These trapped
hydrocarbons are termed shale oil, or shale gas, or are
sometime called "tight" oil and gas, in reference to the way
they are contained in the formation.
Hydraulic fracturing of tight oil formations has become a
major source of oil production in the United States, and
increasingly Canada. The process consists of injecting liquids
at high pressure into the formation, breaking open pockets of
trapped oil or gas. The fracking fluid carries proppants such
as frac sand deep into formations. When hydrocarbon extraction
begins, the proppants hold open the fractures allowing oil or
gas to flow out.
The nature of the fracking fluid depends on the well and the
formation. The most common type of fluid used in the US is
currently "slick-water". This fluid consists primarily of
water, with friction reducing chemicals, and proppants. Gel
fracks, in contrast, use a gelled fracking fluid. This method
allows larger proppants to be carried deep into the well.
Production of these gels requires boron derivatives.
Surviving the oil price crash
Fracking activity, and frac sand demand, has been trending
upward for decades.
But the oil price crash of 2014 brought all this to a
juddering halt. The breakeven point, the price level at which
it was profitable to drill and frac a well, was widely
estimated at around $70 a barrel in mid-2014, at a time when
the West Texas Intermediate price was regularly reaching over
$100 a barrel. When oil prices fell below $50 a barrel by the
start of 2016, wells were left uncompleted while fracking
activity ground to a halt. The Baker Hughes US rig count, which
records the number of active drilling rigs, fell to just 404 in
May 2016 from 1,929 in November 2014 (See graph).
|US rotary rig count 2014-May
|Source: Baker Hughes
But the low oil price also forced a change in priorities
among those frackers who remained in business. For years, the
focus had been on the conductivity of proppants. Conductivity
refers to the ability of hydrocarbons inside the formation to
flow out between the proppant particles. The theory which
predominated was that increasing conductivity was the best way
to increase the amount of oil produced per day by the
The quest for high conductivity drove fracking companies to
prioritise particle size, roundness, sphericity, and crush
strength. Large sand grains, with smooth edges and as close to
perfectly spherical as possible, would back together with wide
gaps for oil and gas to flow out. A high crush strength,
meanwhile, would prevent the sand being broken down under
pressure, losing its valuable properties.
There was only one location in the US where these large,
strong, regular sand grains could be economically sourced:
parts of Wisconsin and Minnesota. This so-called Northern White
sand was for years the gold standard of frac sand. Wisconsin
was dubbed the Saudi Arabia of frac sand.
But when oil prices bottomed out in early 2016 to below $30
a barrel, frackers pared their costs in an attempt to make well
completions profitable in a new era of low prices.
Frackers began to experiment with lower grade sand,
compromising on regularity and crush strength. In addition, a
trend toward longer horizontal wells encouraged the use of
smaller sand grains with a rising proportion of finer mesh sand
and reduced the use of the premium 20/40 and larger mesh sizes.
100 mesh sand, once considered unsuitably fine, became
increasingly valued for its ability to "touch more rock",
getting deeper into the fractures than coarser sand.
Smaller mesh sand makes crush strength less critical,
allowing further compromise in material quality.
At the same time, the total volume of sand needed soared,
both because wells were getting longer, and the amount of sand
used per foot of well was increasing. The sand intensity, or
the volume of sand used per well, had been increasing since
before the 2014 oil price crash and continued afterward because
production returns were so significant.
"We kept putting more sand down the well […] and we
got more oil out," one fracker said. "100,000 [short] tons used
to be a huge amount for a well, now it’s seen
outside the Permian."
Transporting over a 100,000 tons of sand into the basin
requires an entire fully loaded unit train with over 100 cars,
or as one logistics company put it: "that’s a mile
of train for a well."
The process of fracking contains a great deal of trial and
error. Frackers began trialling new techniques for extracting
oil and gas to bring the cost of production lower.
"Every formation is trial and error. What works in West
Texas doesn’t necessarily work in Bakkan," one
This meant when oil prices began to turn a corner in
mid-2016, drillers and frackers were ready to ramp up
production long before prices recovered to their 2018 peak. As
2016 wore on, oilfield activity in the Permian exploded. The
Baker Hughes rig count rose from just 134 in April 2016 to 339
a year later. As of June 2018, there are 477 active rigs in the
US. Every active drilling rig means another well to be
The combination of rising activity with ever higher sand
intensity has led to soaring sand demand. According to
estimates from Credit Suisse last year, frac sand demand
reached a high of 56 million short tons in 2014 before sliding
to just 34 million short tons in 2016. But the combination of
rising sand intensity and renewed fracking activity pushed
demand to over 80 million short tons in 2017. Industry
estimates for 2018 demand range between 95 and 120 million
"The legacy mines are at capacity," one sand miner
|Sand storage on a fracking job.
Quantity is king
But this rising demand will to be met by a slew of new frac
sand production. Frackers want finer mesh sand in huge volumes
that are reasonably priced and are prepared to compromise on
its quality to get it. The result has been the trend toward
in-basin sand. This shift in the type of sand needed, at the
same time as an increased focus on cost, has encouraged buyers
to look outside of their traditional sand sources.
The Permian Basin, where fracking was first developed,
remained the most economical for this story of exploitation. A
combination of supportive regional administration and low
population density, ample pipeline capacity and other
infrastructure, and strong technical understanding, allowed
frackers to operate profitably after operations in other basins
had ground to a halt.
But one downside of the location was the long distance
between it and the big Wisconsin mines. In 2017, Northern White
sand miners reported average sand prices of $35-45 per short
short ton. Prices at well-head, by comparison, were reported at
over $120 per ton.
"We say it’s one third at the mine, a third on
the rail freight, and a third "last mile [the cost of
transporting the sand from a rail terminal to the well
itself]" a logistics company said in late 2017.
Dealing with the new supply
In 2017 a wave of new projects was announced in the Permian
Basin, with miners eyeing up a range of sand dunes in West
Texas. Hi-Crush and Alpine Silica were the first out of the
gates, with new projects in 2017 of projected capacity of
around 3 million short tons per year each.
Preferred Sand, US Silica, High Roller Sands, Vista Sand,
Black Mountain and Aequor have all announced Texan sand
capacity. A total of 16 companies have announced projects in
the Permian, with a total nameplate capacity of almost 40
million short tons. Permian sand demand, meanwhile, is
estimated at around 50 million tons.
The massive volume of new supply is raising concerns about
the impact on sand prices, but this is not the only problem for
the in-basin sand miners. Regional logistics are already
strained to breaking point, particularly due to the shortage of
trucks and road capacity. Moving frac fleets around and
ferrying workers and sand from site to site have bought
logistical snarl ups to the sparsely inhabited
All this comes alongside new competition for space after the
transport of extracted oil moved to trucks and trains. A major
reason why the Permian has been such a popular site for oil
companies is the existence of previously ample oil pipeline
capacity going to other terminals across the country, and to
the Gulf of Mexico. But with production soaring, pipeline
capacity has been reached and exceeded. The result is oil
traveling by rail and road, further stretching
"There is most definitely a hard infrastructure shortage,"
Joel Schneyer, managing director at bank advisory Capstone
Headwaters, said. "Who would have thought of daily traffic jams
in West Texas?"
"Money can and will fix the problem," Schneyer said, but
added that this will take time.
One problem with the increased use of road freight is the
shortage of truck drivers.
As Taylor Robinson, of freight consultant PLG pointed out,
turnover is the sector is extremely high, and there is
reluctance to increase wages to the high levels needed to tempt
drivers out into West Texas.
"With low national unemployment rates and rising wages,
finding responsible drivers has been and will continue to be a
major problem," Schneyer said.
Schneyer suggested that one solution to the logistics snarls
could be box-stored sand.
These sand systems use truck-portable sand boxes, which can
be filled up at the mine or rail-head. The boxes can be stored
without contamination or loss of sand quality, before being
trucked to the well-head.
These systems are prized in densely populated basins such as
Denver because they allow quieter delivery of sand, with less
dust pollution, but they also offer logistics benefits. Sand
can be moved out of the mine or rail depot at a steady pace,
preventing traffic jams on access roads caused by frackers
trying to get tens of thousands of tons onto a site all at
The system could reduce the "mad rush to deliver frac sand
from local mines to the well site," according to Schneyer.
Having an inventory of sand in boxes that needs to be
moved just 5 miles to the well site should reduce traffic
Another problem for Permian miners lies in the composition
of the frac sand being mined. Each well requires a mix of mesh
sizes, with fine mesh sand going deeper down the fractures and
coarser sand closer to the lateral. But the West Texas sand
mines are predominantly 100 mesh, with a smaller proportion of
Industry sources agree that continued demand for coarser
sand will keep demand for Northern White sand. Some miners are
already working to bundle railed 20/40 or 30/50 mesh Northern
White sand from their Wisconsin and Minnesota mines with fine
mesh sand from their local mines. But the fact remains that
planned 100 mesh sand capacity outweighs even the most generous
"Because of the mismatch of fine grained sand supply with
demand requirements, expect the overhang of extra 100 mesh to
drive prices down," Schneyer said. "With the number of new
producers entering the market, expect market discipline to
"In the long term, if that pricing discount is substantial,
expect to see some experimentation with using higher
percentages of 100 mesh in well designs," he added.
With the oil price recovery taking hold, the in-basin trend
has spread outside the Permian, into other regions.
In May 2018, Preferred Sands announced it will open a new 3
million short ton mine in Oklahoma, serving the mid-continent
basin. And in June, Emerge announced another 1.5 million short
ton sand mine in Oklahoma. Demand there is expected to exceed 8
million tons in 2018, rising to over 10 million tons in
"Demand for in-basin fine mesh product is strong, and we
have validated the appetite for local Oklahoma sand with
several key customers operating in the mid-continent basin,"
Emerge chief executive officer Rick Shearer said.
New capacity is also coming online around San Antonio to
serve the Eagle Ford basin.
These further regional developments further threaten
Northern White miners. "At the moment, Northern White sand is
the market in both the Williston Basin and DJ Basin because no
regional sand mines have been developed," Schneyer said. But he
warned that with producers experimenting with lower quality
regional sand, "it raises the question that there may in fact
be few if any barriers to entry to produce frac sand from a
slip stream associated with most any sand and gravel project
already in production."
"Let’s say there is a 2 million ton per sand
and gravel mine operating north of Denver in the Platte River
Valley. Could they divert say 500,000 of the 30/70 mesh
size for attrition scrubbing, drying and screening to produce a
viable frac sand product? Stay tuned," he added.
Schneyer sees the ample new frac sand supply starting to
threaten prices. Producers are pushing for long-term take or
pay contracts, but the low barrier to entry could make these
deals hard to close. "As there currently still is a sand
shortage, sand producers have the upper hand," he
"But as time goes by, expect to see the dynamics shift as
both exploration and production companies, and service
companies invest in new regional sand mine expansions with
both an equity ownership position in the sand mine and
'discounted offtake’ contracts."
The fracking industry in the US state of Texas has condemned
renewed attempts to list the dune sagebrush lizard as an
endangered species because such a move could choke off frac
sand supply from the region.
A letter from the United States’ Center for
Biological Diversity, delivered on May 8, petitioned the
country’s Secretary of the Interior to list the
lizard as a threatened or endangered species.
The petition specifically mentioned the threat from frac
sand mining. Tens of millions of tonnes of new frac sand
capacity have already come online in the Permian Basin this
The dune sagebrush lizard is found in West Texas and New
Mexico. It makes its home among shinnery oak shrubs that grow
on the sand dunes in the region. This habitat often overlaps
with areas that frac sand miners want to exploit.
"The threats from uncontrolled oil and gas development are
significant, but pale in comparison to the potential habitat
destruction and modification from uncontrolled frac sand mining
in the Permian Basin," the petition said.
The status of the lizard is of particular interest to frac
sand miners and oil and gas companies operating in the
because the restrictions that could be imposed by US federal
law if the lizard were categorized as endangered would put
strict limits on road-building and land use in many key
Petroleum industry participants have suggested that the move
to protect the lizard was intended to stymie Permian Basin
fracking and petrochemical activity overall.
But a spokesman for the Independent Petroleum Association of
America downplayed the risk to the dune sagebrush lizard,
saying that voluntary conservation efforts would protect the
"Unfortunately, the tactics of environmental groups remain
the same, attempting to use the Endangered Species Act to
advance an anti-hydrocarbon agenda," he said.
A spokesman for the Texas Oil & Gas Association said
that "listing the species remains unwarranted and would shut
down significant oil and natural gas production and activity,
which is the intent of the groups filing this latest
"Like previous attempts to list the dune sagebrush lizard,
this filing has nothing to do with the lizard’s
habitat," the second spokesman added, suggesting that the
move was instead motivated by "an anti-oil and gas agenda."