Covia idles frac sand capacity while demand slips

By William Clarke
Published: Thursday, 20 December 2018

US frac sand demand has been declining since July this year, Jennifer Deckard Covia’s chief executive said, following the company’s decision to idle capacity in Texas.

Covia will cut its Texas sand production by 1.6 million short tons by the end of January 2019 due to lower demand, the company announced on November 14.

Since September, the company has said it will idle some 4.9 million short tons of capacity, in response to an oversupplied market. 

Falling well completions have been hitting returns for frac sand miners, pressuring sales volumes and frac sand prices.

The pace of demand growth for frac sand in the US has eased slightly over the second half of 2018, due in part to a shortage of logistics capacity and labor in the West Texan Permian basin, including a shortage of pipelines to handle oil production.

The decline in demand coincides with a slew of new frac sand capacity coming online, which has applied downward pressure to prices.

Speaking to investors on November 14, Deckard estimated that the rate of frac sand use fell from an annualized rate of 100 million short tons in June, to around 80-85 million short tons per year by the end of the September.

Deckard has also forecast a further decline in usage for the rest of 2018 due to seasonal factors, with end of year holidays affecting fracking activity, moving down to an annualized rate of 70 million short tons in the fourth quarter.

Demand is expected to recover to 105-115 million short tons per year in 2019, with Deckard noting several customers are planning to expand their fracking activity.

Northern white frac sand, 20/40 mesh, API,
EXW Wisconsin, $/short ton 
Source: Fastmarkets IM

"Pipeline issues in the Permian 

are likely to persist throughout 2019, but will ultimately subside and are expected to provide an added tailwind to Permian completions in the back half of 2019," Deckard said.

Yet despite recovering demand in 2019, this will not be enough to rebalance the over-supplied frac sand market, Deckard said, adding that it would take "additional capacity reductions in order to rebalance."

Covia forecast that at least 15 million short tons of sand has already been taken out of the market following the wave of capacity closures.

"However, we believe more [shutdowns are] likely to come as today’s pricing has reached unsustainable levels for the market," Deckard said.

On September 20 this year, Fastmarkets launched a price assessment for Northern White frac sand, 20/40 mesh, API, ex-works Wisconsin. This price was assessed at $18-25 per short ton on November 15, which is reportedly some 50% below levels achieved in late July.