Demand for frac sand has been rising sharply recently. A
'perfect' scenario of rising oil prices, increased fracking
activity and an increase in the amount of sand used per well,
is driving demand levels for frac sand ever higher.
Frac sand demand reached a high of 56 million short tons in
2014 before sliding to just 34 million short tons in 2016,
according to estimates made by industry analyst Credit Suisse
in 2017, before demand rocketed to 80 million short tons in
2017.
Industry estimates for frac sand demand in 2018 range
between 95 and 120 million short tons.
Yet, there is considerable uncertainty among suppliers. With
waves of new capacity coming online, buyers have become
increasingly reluctant to enter into the long-term take-or-pay
deals that characterized the market late in 2017 and early in
2018.
Additionally, a shortage of oil takeaway capacity in the
Permian Basin in the southern United States means that,
although the pace of fracking activity remains very fast
compared with two years ago, some companies are having to ease
back. This means that the amount of actual sand demand in the
rest of 2018, and into the future, remains a very open
question.
At the same time, the origins of the sand in use are
becoming more diverse, with capacity for tens of thousands of
short tons per year coming online in the US state of Texas, and
new production planned for other areas, including the states of
Oklahoma and Arkansas.
After a
consultation with industry participants, Industrial
Minerals has identified a gap in the market for pricing frac
sand to provide clarity for both buyers and sellers.
Industrial Minerals will, therefore, begin pricing coverage
of the frac sand market and has launched a price assessment for
20/40 Northern White frac sand, assessed
monthly on an ex-mine Wisconsin basis. The minimum lot size
will be 100 short tons, reflecting the predominance of rail
freight in this market.
The Wisconsin coarse-mesh frac sand market was chosen
because it combines a number of features that make it suitable
as a pricing benchmark. There are a large number of buyers and
sellers of this grade, so there is enough liquidity for regular
assessments and, unlike other grades of such material, the
center of production is geographically concentrated.
Finer frac sands such as 70/40 and 100 mesh are being
produced in increasing volumes across North America, with
capacity for tens of millions of short tons per year already
online in western Texas, and further production additions
planned in the Eagle Ford basin to supply Oklahoma and
Arkansas.
Market participants agree that sources of coarse mesh sand,
of the 20/40 and 30/50 grades, are currently geographically
concentrated. High-quality sand is needed for the larger sand
grains to withstand the pressure inside the oil-bearing
formation, which currently means that Northern White sand has
an advantage.
This means that, even though 20/40 mesh sand makes up only a
minority share of the sand used by frackers, it is usually
sourced from one origin, and that origin is Wisconsin and areas
of the neighboring state of Minnesota.
To see data for Industrial Minerals' new Northern
white frac sand, 20/40 mesh, API, EXW Wisconsin, $/short ton
price please click here.