There is one bright spot within the blighted shale industry and it is sand. According to a recent report by Technavio, the global silica minerals mining market is set to grow at a CAGR of five percent in the years 2016 – 2020. The growth is attributed to three major factors which include: rapid urbanization and an increase in demand from glass industry, with sand needed for construction purposes, and growing shale gas production.
According to the report, the global shale gas market, which in terms of volume was 10 trillion cubic feet in 2014, is expected to grow at a rapid rate of 9-10 percent during the forecast period. The market is expected to reach approximately USD 106 billion by 2020 from USD 63 billion in 2014.
Sand has always been an integral part of any shale operation, used as a proppant to “prop open” the fissures created during hydraulic fracturing, but recently it became apparent that increasing the amount of sand in an operation increased production from the fractured wells.
The message from drillers is “more, more, more sand,” Sean Meakim, an oil-services analyst at JPMorgan Chase & Co., told Bloomberg. “All of the numbers are going up and they’re going up dramatically.”
On a per-well basis, sand use has doubled since 2011, climbing to nearly 8 million pounds, according to consulting firm IHS Inc., although overall sand usage is still below the peak reached in 2014. What is more, according to analysts at Jefferies Group and Bloomberg Intelligence, if crude prices rise past $60 per barrel, total sand demand will soar past 2014’s record 64 million tons in as little as two years.
This is not to say that the proppant market remained unchanged during the downturn. While operators raced to reduce costs, the more expensive options have been hit the hardest. Ceramic proppant market suffered considerably as drillers moved to, cheaper, sand. But they weren’t the only casulties of the supply glut. More expensive, high quality sand from Wisconsin and Minnesota often lost to brown sand which, according to Bloomberg, now accounts for more than 40 percent of the market, up from 16 percent in 2014.
Despite the increased demand for silica sand the market is still very price-sensitive. Sand suppliers realize that in a competitive market, innovation is needed to differentiate the product from competitors and win over clients. For example, market-leader Fairmount Santrol offers self-suspending proppant technology and resin-coated sand, which in initial field trials are continuing to reduce the cost per barrel of oil equivalent (BOE) while producing more oil and gas.
Smaller companies are also looking for ways to add value to their product. ArrMaz for example developed SandTec – a proppant coating technology which meets the new, revised rules by OSHA (Occupational Safety and Health Administration) for respirable crystalline silica dust. The coating is easily applied to frac sand using a proprietary application system with no drying or curing required, and provides stable, long-lasting silica dust protection throughout the hydraulic fracturing supply chain.
After a difficult period it seems that the sun is out at last for proppant producers.
“People are uber uber bullish on sand,” Matthew Johnston, an oil-services analyst at Nomura Securities told Bloomberg. “I get it. I understand where all the euphoria is coming from.”
U.S. Silica’s shares have more than doubled this year, while Fairmount Santrol Holdings Inc. tripled. Hi-Crush Partners LP rose 116 percent and Emerge Energy Services LP climbed 103 percent. In comparison, oil exploration and production companies in the S&P 500 rose 14 percent, while those in a broad oil-services index are little changed.
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