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21 June 2019

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While the race to the south for the US frac sand industry was akin to the Gold Rush there is one big difference – the Gold Rush didn’t have the benefit of hindsight, writes Texas-based Eoin Heron, VP and Business Development Director North America for CDE.

A significant decrease in Wisconsin sand volumes has left many of the mammoth fixed frac sand plants largely mothballed. They now represent a permanent warning to those in the industry of how quickly fortunes can change, as well as the need to be able to move fast to flourish.

The high-strength, coarser-grained Northern White sand supplied the majority of the market until the industry discovered that the inferior quality, locally available, cheaper, finer-grained, regional sand in states such as Texas would, for the most part, do the job just as well. Therefore, the race for the next big thing was on.

Challenges for Fixed Frac Sand Plants

Although several companies still proudly operate from Wisconsin, this unexpected competition from sand mines opening in Texas resulted in the closure of many of the large fixed frac sand plants in the Badger State.

The costs associated in the supply chain, such as the cost per ton to rail the sand from Wisconsin across the country to West Texas, made it uncompetitive to transport the sand from the north to where it was needed. In rare cases, trucking also proved expensive and challenging given the significant shortages in drivers across the United States.

Those who made it to Texas ahead of the pack reaped the benefits early movers enjoy, with Hi-Crush first to claim its stake.

Dismissing the Rumors

While there have been some reports suggesting Northern White sand is showing signs of a comeback – and this after an almost dead stop in 2015 and 2016 – this type of return is not something we are seeing, nor something we expect to see.

Of course, Northern White sand will always have a market, and its superior quality will ensure it continues to see a reasonable level of market share into various basins. But this is not likely where frac industry growth will come from.

For example, Infill Thinking reported in February that there was no evidence of reverse substitution back to Northern White sand, with local sand mines versus rail transload volumes running at 90% to 10%. Already this year, Wisconsin sand has fallen significantly below the projected lower level of $25 per ton.

Ongoing Developments

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Success, however, breeds its own challenges, and West Texas is now experiencing an overhang of sand supply in the wake of a plethora of regional sand buildouts.

Earlier this year, Rystad Energy released a report detailing that the adoption rate of in-basin Permian dune sand had reached as high as 80% already in 2019. This begs a couple of questions: what and where next for the frac sand industry?

Well, we are seeing a drive for plants in Oklahoma, Louisiana and Alberta, Canada, to name a few. As new reserves are located closer to well sites, in-basin sand plants will continue to be established in these regions.

Additionally, eyes are turning to Latin America, particularly Argentina, where frac sand volumes produced in-country are quickly growing. This will reduce the dependency on imported sand from the U.S. and help reduce operating costs for Argentinian producers while eliminating the logistical challenges of shipping sand over long distances. In turn, it is likely this will lead to a reduction in sand volumes from key U.S. exporters to that region in the near future.

Future-Proofing Your Business

As the industry increasingly looks to other U.S. states and beyond, the key lesson to be learned from the recent boom in demand is the importance of future-proofing your business and ensuring you are agile.

More and more, with the volume of sand we see in an industry that can shift focus fast, it is critical to put yourself in position to be able to adapt and relocate your technology to suit demand and take advantage of opportunities.

Hindsight is a wonderful thing. Let’s make sure we learn from the past and capitalize on it.

This article first appeared in the June 2019 edition of Pit & Quarry as a contribution from Eoin Heron, VP and Business Development Director, North America for CDE.

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