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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The frac sand mine gold rush appears to be coming to a close, judging from recent market developments and the sentiments expressed at the 6th Frac Sand Conference, held September 25-26 in Denver, Colorado.
According to data tracked by Industrial Info, 19 frac sand mines valued at about $1.38 billion have begun operating in the U.S. since January 1, 2017. Most of those mines -- 13 to be exact -- came online in Texas. Wisconsin saw three mines come online since the start of 2017, while Ohio, Illinois and Missouri each saw one new mine begin operating.
By expanding capacity, the newly opened mines helped push down sand prices. But a more important factor has propelled sand prices downward over the last few months: some in the Oil & Gas Industry believe a plateau has been reached in the per-mine demand for frac sand.
"We're in a really over-supplied market," Scott Sustacek, chief executive at family-owned Jordan Sands (North Mankato, Minnesota), told about 90 attendees September 25. Prices for his firm's Northern White Sand have fallen about $20 per ton, to a recent level of about $30 per ton, since the summer. "Prices are not anywhere near where they were in the May-June timeframe," he told attendees at the conference sponsored by Industrial Minerals (London, England). Trainloads of sand his firm used to send to West Texas instead have been going to drillers in the Bakken, Mid-Continent and South Texas for the last year or so.
Recent sharp price declines for Northern White Sand were confirmed by another operator from the Upper Midwest.
To some degree, frac sand mined in the Upper Midwest has been displaced by locally or regionally mined frac sand, particularly in Texas. The regional shift, from Northern White Sand mined in Wisconsin and Minnesota to regional or local sands mined in Texas, Colorado and other states closer to oil production centers, also was discussed at the conference.
In an interview at the conference, Joel Schneyer, a managing director at Capstone Headwaters (Denver, Colorado), said: "It's an overbuilt market. If you have (frac sand) production capacity of about 100 million tons per year, and you have demand of about 100 million tons per year, and then you add another 140 million tons of capacity without adding new demand, prices decline. It's almost like some of these people never took an economics course."
In recent years, Oil & Gas producers have been able to extract more hydrocarbons by drilling longer laterals and increasing the number of frac stages, both of which drive up use of proppants like frac sand. But now, although there was some diversity of opinion at the conference, some say sand use per well is plateauing, at least in some formations. That is, beyond a certain point, adding more proppant does not cost-effectively produce additional hydrocarbons. The point of diminishing returns has been reached -- again, for some operators in some formations.
Others disputed that. Several speakers and attendees pointed out the industry remains in a steep learning curve and period of experimentation. "We're still trying to get the recipe right, and the recipe differs from one reservoir to another," one speaker commented.
Frac sand prices might not have come down as sharply as they have if the Oil & Gas industry was still increasing its use of frac sand to extract oil and gas in a lockstep, one-to-one basis. Last year at this conference, speakers and attendees expressed little concern about a possible price collapse because wells were using ever-increasing volumes of frac sand. For more on that, see October 2, 2017, article - Frac Sand Market Roiled by New Capacity, Logistical Challenges.
No longer is this the case, at least for some producers in some basins. And there are signs the situation is likely to get worse before it gets better. Industrial Info is tracking 23 frac sand mines under development in the U.S., valued at $990 million. If producers in certain basins have, in fact, found an optimal sand-to-production ratio, future frac sand demand growth for those producers in those basins will not grow as planned even one year ago.
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.
According to data tracked by Industrial Info, 19 frac sand mines valued at about $1.38 billion have begun operating in the U.S. since January 1, 2017. Most of those mines -- 13 to be exact -- came online in Texas. Wisconsin saw three mines come online since the start of 2017, while Ohio, Illinois and Missouri each saw one new mine begin operating.
By expanding capacity, the newly opened mines helped push down sand prices. But a more important factor has propelled sand prices downward over the last few months: some in the Oil & Gas Industry believe a plateau has been reached in the per-mine demand for frac sand.
"We're in a really over-supplied market," Scott Sustacek, chief executive at family-owned Jordan Sands (North Mankato, Minnesota), told about 90 attendees September 25. Prices for his firm's Northern White Sand have fallen about $20 per ton, to a recent level of about $30 per ton, since the summer. "Prices are not anywhere near where they were in the May-June timeframe," he told attendees at the conference sponsored by Industrial Minerals (London, England). Trainloads of sand his firm used to send to West Texas instead have been going to drillers in the Bakken, Mid-Continent and South Texas for the last year or so.
Recent sharp price declines for Northern White Sand were confirmed by another operator from the Upper Midwest.
To some degree, frac sand mined in the Upper Midwest has been displaced by locally or regionally mined frac sand, particularly in Texas. The regional shift, from Northern White Sand mined in Wisconsin and Minnesota to regional or local sands mined in Texas, Colorado and other states closer to oil production centers, also was discussed at the conference.
In an interview at the conference, Joel Schneyer, a managing director at Capstone Headwaters (Denver, Colorado), said: "It's an overbuilt market. If you have (frac sand) production capacity of about 100 million tons per year, and you have demand of about 100 million tons per year, and then you add another 140 million tons of capacity without adding new demand, prices decline. It's almost like some of these people never took an economics course."
In recent years, Oil & Gas producers have been able to extract more hydrocarbons by drilling longer laterals and increasing the number of frac stages, both of which drive up use of proppants like frac sand. But now, although there was some diversity of opinion at the conference, some say sand use per well is plateauing, at least in some formations. That is, beyond a certain point, adding more proppant does not cost-effectively produce additional hydrocarbons. The point of diminishing returns has been reached -- again, for some operators in some formations.
Others disputed that. Several speakers and attendees pointed out the industry remains in a steep learning curve and period of experimentation. "We're still trying to get the recipe right, and the recipe differs from one reservoir to another," one speaker commented.
Frac sand prices might not have come down as sharply as they have if the Oil & Gas industry was still increasing its use of frac sand to extract oil and gas in a lockstep, one-to-one basis. Last year at this conference, speakers and attendees expressed little concern about a possible price collapse because wells were using ever-increasing volumes of frac sand. For more on that, see October 2, 2017, article - Frac Sand Market Roiled by New Capacity, Logistical Challenges.
No longer is this the case, at least for some producers in some basins. And there are signs the situation is likely to get worse before it gets better. Industrial Info is tracking 23 frac sand mines under development in the U.S., valued at $990 million. If producers in certain basins have, in fact, found an optimal sand-to-production ratio, future frac sand demand growth for those producers in those basins will not grow as planned even one year ago.
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.
