Bloomberg is reporting (go to the link to see entire article; only parts of it are seen below):
The U.S. shale oil boom is putting
millions of tons of sand onto North American railroads, enabling
carriers to pack trains full instead of hauling just a handful
of cars at a time.
With help from Union Pacific Corp. (UNP) and Warren Buffett’s
BNSF Railway Co., the sleepy silica sand industry that once
mostly supplied glassmakers now ships more than 20 million tons
of the material a year. Buyers including Halliburton Co. and
Schlumberger Ltd. use the sand in hydraulic fracturing at oil
fields in Texas and North Dakota.
Miners such as Emerge Energy Services LP, U.S. Silica
Holdings Inc. and Hi-Crush Partners LP are taking a page from
the grain industry’s playbook to deliver sand faster and
cheaper. They’re building facilities at their mines to load unit
trains, which move just one type of cargo, and near oil fields
to empty them.
“The customers more and more are saying ‘We don’t want the
headache of logistics. That’s on you,’” Rick Shearer, chief
executive officer of Southlake, Texas-based Emerge, said in an
April 14 phone interview. “We’ve scrambled to put in a network
of storage and trans-load sites all over North America.”
100 cars:
For decades, sand-mining companies catered mostly to
glassmakers that sent a few rail cars, said Shearer, whose
company was created in 2012 by combining Superior Silica Sands
with two energy-service firms.
Now, with fracking helping drive
oil output, Emerge fills trains pulling 100 cars on newly laid
track from shiny metal silos.
Unit trains will move about 25 percent of sand sent to oil
and gas users this year, a fivefold surge from 2013, and the
share could rise to 50 percent in the future, according to U.S.
Silica. Union Pacific and BNSF, the two major carriers in the
western U.S., are poised to benefit from shale-oil production in
the region and sand mines in Wisconsin, Illinois and Minnesota.
Union Pacific, the largest publicly traded U.S. railroad,
and U.S. Silica together are constructing a $12 million storage
facility for the sand in Odessa, Texas, that will handle two
unit trains at a time.
BNSF
BNSF built an off-loading operation near San Antonio with
U.S. Silica that reached capacity of 15,000 tons sooner than
expected and will be expanded, U.S. Silica CEO Bryan Shinn said
in an April 11 phone interview.
Unit trains help railroads because the cargo is hauled
quicker and doesn’t have to be switched at crowded yards.
Trains
loaded only with sand can reach their destination and return in
four days instead of two or three weeks. The cost savings is as
much as 20 percent, Emerge’s Shearer said.
The payoff for the mining companies is a higher price,
Shinn said. A ton of sand that sells for $50 at the mine gate
can fetch $130 near the drilling area, he said. The sand moves
in covered hoppers also used for cement. They’re shorter than
grain cars because the product is heavier, Shinn said.
The Sand
Drillers covet the hard, round sand grains that are
produced in the U.S. Midwest. The sand comes in several
varieties and sizes depending on the shale fractures’ width,
making the shipping logistics even more complicated than grain.
Unlike crude-by-rail shipments that face pipeline
competition, frac sand is railroads’ domain. The amount hauled
is growing faster than drilling activity as oil producers find
they can improve yields by packing in more sand per well.
The railroads
BNSF’s shipments of sand, with the large majority of it for
fracking, rose 15 percent to 140,000 carloads, said Mike Trevino, a spokesman for the Fort Worth, Texas-based railroad.
Shale-related freight is helping pump up results at both
carriers. Union Pacific’s 2013 net income rose 11 percent to
$4.39 billion on a 5 percent gain in revenue to $21.96 billion.
BNSF’s net income climbed 12 percent to $3.79 billion on a 5.7
percent gain in revenue to $22 billion.
The railroads will also benefit from having a few large
mining companies that ship most of the sand. The drive toward
unit trains and the investment it requires puts smaller miners
at a disadvantage ...
Emerge is building toward 20 unit trains of sand a month
from none two years ago, Shearer said. The company is adding two
new mines that together will have annual capacity of 5 million
tons and give it access to Canadian National Railway Co. (CNR) and
Canadian Pacific Railway Ltd.
The company’s existing mines are
served by Union Pacific and BNSF, he said.
“We will be on four Class I railroads when we finish these
plants,” Shearer said. “That was a key focus for us to add
this logistics flexibility.”
U.S. Silica is now selling 70 percent of frac sand from its
storage facilities near drilling areas, up from 5 percent two
years earlier, U.S. Silica’s Shinn said.
