by Daniel Debelius
August 31, 2017
Proppants are granular materials -- typically sand, coated sand, or man-made ceramics -- used in oil and gas wells to maintain, or “prop” open, the cracks produced during hydraulic fracturing. Essentially, they provide support to the fracture, allowing oil and gas to flow more freely to the wellhead.
Raw frac sand, which must meet stringent requirements for the shape, size, and strength of individual grains, is by far the most popular proppant being used today. It is cheap, non-hazardous, and effective. The only problem is that high quality sand cannot be found everywhere. The best sand is mined in Wisconsin, far from places like Texas and Oklahoma where demand is concentrated. With millions of pounds of sand being used for each horizontal well, transporting frac sand creates a large cost and real strain on infrastructure.
However, this may be changing. In a major development, three frac sand companies announced investments in West Texas to develop sand mining facilities in the first half of 2017. Hi-Crush Partners purchased Permian Basin Sand Co. in February, while market leaders Unimin and U.S. Silica announced new plants in West Texas in the past two months. The financial details of Unimin’s plant have not yet been announced, but the other two companies are investing a combined half billion dollars in the region.
Due to the low cost per pound and large volumes needed -- sometimes over two hundred rail cars of sand for a single well -- a large fraction of the costs associated with frac sand are tied to transporting it around the country. The industry has been seeking alternatives for years, and some companies have turned to other options, like the slightly lower quality sand mined near the city of Brady, in Central Texas.
Better still is finding high quality sand even closer to the point of use, with the ideal scenario being a source of sand right in the oil and gas basin where it will be used. The new West Texas sand currently under development provides just that to the operators in the Permian Basin.
Despite the currently low oil price, proppant suppliers are betting on continued demand, especially in the highly drilled unconventional oil plays in Texas. According to Erik Nystrom, a Strategic Marketing Manager with Unimin, the sand is expected to be used mainly in the Permian Basin. “The advantage of this sand is the cost component being far lower than other material [transported] to the Permian Basin,” says Mr. Nystrom.
The Permian Basin is by far the most active oil play in the US over the past year, receiving tens of billions of dollars in land investments since mid-2016. The Permian is valued for its stacked layers of productive rock formations and potentially high yields of tight oil. Given the level of unconventional drilling and well completion activity currently occurring in the Permian, the demand for quality frac sand is at or near an all-time high in the region, even with low oil prices.
The development of sand in West Texas is therefore a huge opportunity for frac sand companies and a boon to operators, allowing them to spend less on transportation costs and provide quicker mine-to-wellhead delivery times. It remains to be seen how large a share of the Permian Basin’s frac sand market these new supplies will be able to capture. However, with three major players committing investment to the resource, early signs indicate a major shift is underway.
Demand for all major frac sand sources in the United States is expected to continue to grow. For more information on raw frac sand and other proppants, check out The Freedonia Group’s industry study Proppants Market in North America, which offers:
Daniel Debelius is an industry analyst at The Freedonia Group, where he writes industry studies focused on the US chemical market.
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