Posted on September 10, 2018
Researcher says he was surprised by how quickly mining companies arrived in Texas
Image: Conveyors stand above a sand pile at the Black Mountain Sand LLC Vest Mine in Winkler County, Texas, U.S., on Tuesday, June 19, 2018. In the West Texas plains, frack-sand mines suddenly seem to be popping up everywhere. Twelve months ago, none of them existed – together, these mines will ship some 22 million tons of sand this year to shale drillers in the Permian Basin, the hottest oil patch on Earth. Photographer: Callaghan O’Hare/Bloomberg
That rising oil and gas exploration and production, more investment and escalating proppant intensity is driving “extreme” growth in demand for proppant sand was no surprise to Brandon Savisky.
Savisky, senior market research analyst, cost and technology at IHS Markit, studied the issue as he worked on a report: IHS Markit ProppantIQ 2Q2018 Analysis. He found that market value for proppant sand has jumped from $1.2 billion in 2016 to more than $4 billion this year and is expected to climb to nearly $6 billion by 2023.
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“How quickly players popped up in the Texas market surprised me,” he said in a phone interview from his Houston office.
The growth has its roots in the recent oil price downturn, when “everyone was trying to cut spending, cut everything,” Savisky said. That led operators to switch from coated or ceramic proppants to cheaper, more abundant plain sand.
That “brown” sand is increasingly being mined within the Permian Basin by companies that have cropped up, significantly reducing transportation costs, delivery times and competition for supply.
“You’re seeing a lot of players producing a little more and outstripping demand” as producers temper their output amid concerns about takeaway capacity constraints, Savisky said.
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“It’s not so much that operators are pulling back. They’re still continuing their guidance, they’re spending more for big completions. But they want to do it smartly and how to best optimize production,” he said.
They may tap the brakes or invest more in the Eagle Ford or other producing basins where there’s more takeaway capacity, he said.
“There won’t be as much impact as Wall Street fears, or on sand demand,” he said.
With the little bit of oversupply in the local and regionally produced sand supply, Savisky predicted there may be a halt in some new-build or expansions of existing facilities. He said he expects mining facilities that have been announced, are under construction or in the process of being permitted will be completed.
Total North American proppant demand is forecast to exceed 168 billion pounds this year, a gain of 27 percent. Of that 168 billion pounds, sand will account for 162 billion pounds, up 29 percent year-over-year. By 2023, sand demand will soar to an estimated 231 billion pounds, an increase of 113 percent over peak demand levels set in 2014 and far higher than 2011, when the market was slightly more than 51 billion pounds. Savisky said the Permian Basin currently accounts for nearly 40 percent of market demand, with that share rising to almost 50 percent by 2023.
“The biggest hurdle now for not only mining and logistics companies but also for operators is infrastructure and trucking that last mile,” Savisky said. “You can put all the sand you want in the Permian Basin, but you still have to get it to location. You can’t helicopter it in, you can’t just snap your fingers.”
He noted that operators and vendors across the supply chain are beginning to work together to address infrastructure issues such as roads and the need for more trucks and truck drivers to haul sand and water and crude.
“It will take work on these projects and investing in communities, as they should have long ago,” he said.
Mella McEwen is the Oil Editor and covers the latest business and energy news. You can read more from her here. |email@example.com|