Waiting on the frac sand floodgates to open

By |  September 20, 2019
Frac sand producers are taking advantage of this lull in the market to prepare for the next boom. Photo: iSstock.com/BanksPhotos

Frac sand producers are taking advantage of this lull in the market to prepare for the next boom. Photo: iStock.com/BanksPhotos

A lot can change in a year.

Twelve months ago, the frac sand market was reaching new peaks, activity was at an all-time high and a rejuvenated market was booming with seemingly no end in sight.

Mark Krause, the managing director of North America at McLanahan Corp., says today’s market is close to a standstill as oil companies wait for more pipeline capacity to open.

During the standstill, however, sand producers are working in anticipation of what’s to come.

“Maybe two and a half years ago, I told everyone at our company to remember these days because you will never see them again,” Krause says about the frac sand boom. “Today, the frac sand market is on a pause. It didn’t go to a dead stop, though, like many of us thought. There is continued activity and equipment improvements to get ready for the next wave.”

Pipeline availability is one cause for this pause, Krause says, and an opportunity for all involved in the hydraulic fracturing  industry. Once pipelines that can handle the growing volume of oil are operational, the frac sand market can return to levels seen just a few months ago. Until those pipelines open and product begins to flow, sand producers are quickly preparing for what’s to come.

In the pipeline

Fracking companies are delaying operations until the completion of new pipeline projects in Texas. As these companies elect to leave oil and gas in the ground, frac sand demand, in turn, has fallen.

“These pipelines are 12 to 18 months from being completed,” Krause says. “So, in 12 to 18 months, there should be an increased demand for sand again.”

Producers are taking advantage of the 12- to 18-month wait, Krause says, by updating crucial equipment and positioning operations in anticipation of the future.

“I think [producers] learned if you are the first one in, you get a leg up on the competition,” he says. “Producers are making plans, getting prepped, moving and upgrading equipment in preparation of those pipelines opening.”

In addition to equipment upgrades, Krause sees oil companies purchasing frac sand plants in an attempt to become more vertically integrated. This type of business positioning adds control and gives a leg up on less vertically integrated companies. As Krause explains, these oil companies have a better pulse on when pipelines will open and can ramp up sand production when the time comes.

Improving efficiency is a key point in equipment upgrades, Krause says. Anytime producers can be more efficient, it helps bring the cost per ton down and allows producers to absorb the price movement common for the marketplace.

Location, location, location

Other than knowing when these pipelines will open, another critical component to the frac sand market is location.

Transportation costs are important to oil companies, even moreso than the actual product itself. It ultimately will come down to the relationship between the sand producer and oil company. The closer a producer is to the drilling, the more likely the sand will come from that source.

“Over time, whether its science, economics or all of the above, some people might say lower-grade materials from Texas have taken over from Wisconsin because the cost of transportation cost is so high,” Krause says. “It is not surprising for this industry that continues to evolve to see that kind of stuff and to see different opportunities for new materials.”

Krause says there’s also a change in material grade required. Previously, 40-70 mesh was the key product. Today, oil companies require 70-140 mesh-range material to pump into the ground.

Location will also play a major role as international elements enter the equation. Krause points out Canadian plants are ramping up production, there’s been a pretty large boom in Argentina, and McLanahan is even building its first plant in China. He’s even interested in typical large oil-producing countries, like Saudi Arabia and Venezuela, if they will jump on the fracking bandwagon.

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About the Author:

Joe McCarthy is a former Associate Editor of Pit and Quarry Magazine.

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