Global energy war: Will frac sand producers be a casualty?

When OPEC decided last week to not scale back oil production, it was a shot across the bow of the North American shale industry in what is amounting to a war for the global energy market. And one of the casualties could become North American frac sand producers.

CNN Money reports that the oil cartel’s decision was widely seen as an attempt to choke off the U.S. shale boom. “OPEC figures that by driving down oil prices, North American producers will collapse.”

But it won’t be easy to derail the shale industry. CNN Money cites a report from the International Energy Agency: “Most producers in North Dakota’s Bakken formation, an area that’s been a key contributor to the shale revolution, can remain profitable even if oil falls to $42 per barrel (it’s currently at $68).”

The CNN article says OPEC appears to be following its 1986 script, when Saudi Arabia ramped up production and sent prices tumbling. The strategy forced many oil drillers in Texas, Oklahoma and Louisiana out of business and allowed the Saudis to clinch more market share. But the article notes that the North American energy industry is more resilient this time around.

How will this affect frac sand producers? Today, aggregates industry consultant Alan Maio, a partner at Q4 Impact, told me, “I don’t think it will have any effect until 2016, as most large customers of the top five sand producers have a high percentage of their volume under contract. From what I’m hearing, the oil services companies haven’t changed their volume predictions for 2015.”