From The Financial Times: Going local for supplies sparks new frac sand boom. Market is stretched to full capacity amid US shale oil’s drive to extend output cheaply.
Windblown dunes in west Texas are the latest front in the shale oil industry’s campaign to extract more barrels at less cost.
The industry is excavating dunes for frac sand, which is pumped into wells to crack open rocks and get oil and gas flowing. The deposits are in demand because they lie close by the hot Permian shale region, making them cheaper than sands carried in from older mines 1,000 miles away. Locally dug sand is influencing the economics of US oil production, helping shale supplies compete in world markets.
It is also worrying investors who own shares in railroads that haul sand and in sand miners that may be on the cusp of a glut. Sand was a critical ingredient of the shale drilling revolution. Without it, US oil production would not have nearly doubled in the past decade to an estimated 9.7m barrels per day.
Between 2012 and 2014, total US demand for “proppants” such as frac sand rose from 34m to 61.5m short tons, according to Rystad Energy, a consultancy.
Then oil prices collapsed, bringing down sand consumption as well. Volumes are again on the upswing as drilling accelerates, oil wells get longer and more sand is used per foot of well.
Demand is forecast to surpass 100m short tons next year, Rystad says. “Right now, the market is really stretched thin,” says Thomas Jacob, a senior analyst at IHS Markit, a research company. “Everyone is running at full capacity.”
But this sand boom is different than the last.
In the first phase of the shale fracking boom, oil producers were notorious for prioritising production growth over investor returns. They sought premium sand supplies far from the oil patch in states such as Wisconsin. Its “northern white sand” was prized for hardness and roundness that made a porous latticework inside underground wells. But given its bulk, it also cost a fortune to ship. Northern white sand has averaged $41 per short ton at the mine gate this year, according to IHS Markit, but can cost $120 at a Texas well head after transport.
Cost-cutting among oil companies sparked a search for supplies lying around the Permian, known as brown sand. While finer in grain, it is also cheaper at $75-$80 per short ton at the well head, Mr Jacob says. Distances are short enough to make some deliveries economical by truck.This is only a small part of the article; much more at the linked article.
