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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Continued strong demand for industrial sand, mainly for hydraulic fracturing in the Oil & Gas industry, is driving a high level of project activity for new frac sand mines, Taylor Robinson, president of PLG Consulting (Chicago, Illinois), said in a June 13 webcast. In recent years, he said, demand for frac sand has risen faster than supply, leading to price increases and the construction of more than a dozen new mines in Texas alone.
"Frac sand prices are still strong," he said on the webcast. "The question is, when will supply overtake demand?"
It may happen soon. He said 10 new frac sand mines in the Permian Basin have started production, and an additional six to eight are expected to come online in the not-too-distant future. "Although supply is quite tight today, we expect that will be relieved later in 2018 or early in 2019," he said.
"There has been a dramatic increase in demand in the industrial sand market, with demand rising from about 35 million tons in 2016 to 75 to 80 million tons in 2017," he said. "This year, we may hit 100 million tons." About 50% of U.S. frac sand production is used in the Permian Basin, he estimated, adding: "As the Permian goes, so goes the rest of the frac sand industry."
Industrial Info is tracking 12 active Texas frac sand mines under development, worth about $1.1 billion. For more on the growing demand for frac sand, see May 25, 2018, article - Frac Sand Plays Big Role in $950 Million in Second-Half 2018 U.S. Mine Completions, October 7, 2017, article - Frac Sand Market Roiled by New Capacity, Logistical Challenges and September 19, 2017, article - Economics of Fracking in Texas May Shift with Planned Frac Sand Projects.
Several of the planned frac sand mines in Texas will be located between the Delaware and Midland basins, both of which are part of the Permian, he noted. Mines also are under development in the Fayetteville and Eagle Ford shales, Robinson said. The transition to use of locally sourced sand, rather than transporting sand mined in the Upper Midwest, is one of the strategic trends driving the industrial sand market, he added. In 2016 and 2017, drillers in the Permian used zero locally sourced frac sand, but this year they are expected to use local mines for about 50% of their sand, he estimated. Next year, that could rise to 75%.
The supply chain from the Upper Midwest to the Permian Basin was long, complex and costly, the PLG Consulting president said. Plus, legacy mines there were running flat out but still not meeting national demand, which drove logistics costs to as high as 75% of the delivered cost of sand. Local sourcing of sand could save between $250,000 and $420,000 per well, he estimated.
Strong crude oil production growth in the Permian has driven the development of new mines there. Permian crude oil production is slated to reach about 3.2 million barrels per day (BBL/d) this month, more than double its production from four years ago, according to the latest Drilling Productivity Report from the U.S. Energy Information Administration (EIA) (Washington, D.C.). Crude oil production growth has been so dramatic in the Permian that it has overwhelmed the outbound pipeline network, which means some wells may have to be shut-in later this year. For more on that see, June 20, 2018, article - Consultant: Lack of Permian Pipeline Capacity will Force Production Curtailments.
Click on the image at right to see crude oil production growth over the last 10 years in Texas' Permian Basin.
As Oil & Gas drillers become more knowledgeable about the specifics of different formations and different completion techniques, laterals have grown significantly longer in recent years, the consultant pointed out. In early 2014, laterals averaged about 800 feet; four years later, laterals are averaging more than 2,000 feet. Longer laterals need more frac sand.
Although "there are lots of forces pushing frac sand prices up, up, up, it's not a sure thing that that will continue to be the case," Robinson said, noting the "last-mile" challenges that continue to bedevil logistics companies and drillers. Frac sand can account for up to 15% to 20% of the total cost of drilling a well, he estimated.
He estimated frac sand's "last mile" costs of between $34 per ton and $42 per ton for a 100-mile haul. The development of local frac sand mines increases the urgency of finding ways to lower the "last mile" costs borne by operators, Robinson said.
He noted there also are wrinkles in the frac sand market that go beyond the supply and demand for frac sand and the "last mile" logistics. The nation currently is short about 50,000 truckers, he said, which adds upward pressure to sand prices and can play havoc with delivery schedules. Also, this month a tough new rule on silica dust exposure goes into effect. That rule, from the Occupational Health and Safety Administration (OHSA) (Washington, D.C.), could pose some challenges for some frac sand operators, Robinson said.
"The 'last mile' challenge is the final frontier in the frac sand business," he concluded. "Becoming more efficient is a big challenge."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
"Frac sand prices are still strong," he said on the webcast. "The question is, when will supply overtake demand?"
It may happen soon. He said 10 new frac sand mines in the Permian Basin have started production, and an additional six to eight are expected to come online in the not-too-distant future. "Although supply is quite tight today, we expect that will be relieved later in 2018 or early in 2019," he said.
"There has been a dramatic increase in demand in the industrial sand market, with demand rising from about 35 million tons in 2016 to 75 to 80 million tons in 2017," he said. "This year, we may hit 100 million tons." About 50% of U.S. frac sand production is used in the Permian Basin, he estimated, adding: "As the Permian goes, so goes the rest of the frac sand industry."
Industrial Info is tracking 12 active Texas frac sand mines under development, worth about $1.1 billion. For more on the growing demand for frac sand, see May 25, 2018, article - Frac Sand Plays Big Role in $950 Million in Second-Half 2018 U.S. Mine Completions, October 7, 2017, article - Frac Sand Market Roiled by New Capacity, Logistical Challenges and September 19, 2017, article - Economics of Fracking in Texas May Shift with Planned Frac Sand Projects.
Several of the planned frac sand mines in Texas will be located between the Delaware and Midland basins, both of which are part of the Permian, he noted. Mines also are under development in the Fayetteville and Eagle Ford shales, Robinson said. The transition to use of locally sourced sand, rather than transporting sand mined in the Upper Midwest, is one of the strategic trends driving the industrial sand market, he added. In 2016 and 2017, drillers in the Permian used zero locally sourced frac sand, but this year they are expected to use local mines for about 50% of their sand, he estimated. Next year, that could rise to 75%.
The supply chain from the Upper Midwest to the Permian Basin was long, complex and costly, the PLG Consulting president said. Plus, legacy mines there were running flat out but still not meeting national demand, which drove logistics costs to as high as 75% of the delivered cost of sand. Local sourcing of sand could save between $250,000 and $420,000 per well, he estimated.
Strong crude oil production growth in the Permian has driven the development of new mines there. Permian crude oil production is slated to reach about 3.2 million barrels per day (BBL/d) this month, more than double its production from four years ago, according to the latest Drilling Productivity Report from the U.S. Energy Information Administration (EIA) (Washington, D.C.). Crude oil production growth has been so dramatic in the Permian that it has overwhelmed the outbound pipeline network, which means some wells may have to be shut-in later this year. For more on that see, June 20, 2018, article - Consultant: Lack of Permian Pipeline Capacity will Force Production Curtailments.
Click on the image at right to see crude oil production growth over the last 10 years in Texas' Permian Basin.As Oil & Gas drillers become more knowledgeable about the specifics of different formations and different completion techniques, laterals have grown significantly longer in recent years, the consultant pointed out. In early 2014, laterals averaged about 800 feet; four years later, laterals are averaging more than 2,000 feet. Longer laterals need more frac sand.
Although "there are lots of forces pushing frac sand prices up, up, up, it's not a sure thing that that will continue to be the case," Robinson said, noting the "last-mile" challenges that continue to bedevil logistics companies and drillers. Frac sand can account for up to 15% to 20% of the total cost of drilling a well, he estimated.
He estimated frac sand's "last mile" costs of between $34 per ton and $42 per ton for a 100-mile haul. The development of local frac sand mines increases the urgency of finding ways to lower the "last mile" costs borne by operators, Robinson said.
He noted there also are wrinkles in the frac sand market that go beyond the supply and demand for frac sand and the "last mile" logistics. The nation currently is short about 50,000 truckers, he said, which adds upward pressure to sand prices and can play havoc with delivery schedules. Also, this month a tough new rule on silica dust exposure goes into effect. That rule, from the Occupational Health and Safety Administration (OHSA) (Washington, D.C.), could pose some challenges for some frac sand operators, Robinson said.
"The 'last mile' challenge is the final frontier in the frac sand business," he concluded. "Becoming more efficient is a big challenge."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
