Industrial Minerals to track prices in booming frac sand market

Published: Thursday, 20 September 2018

Industrial Minerals is launching a Wisconsin coarse-mesh frac sand price to track prices with increasing volumes across the expanding frac sand market.

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.

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