Demand for Frac Sand

In the past decade the demand for frac sand has increased as thousands of oil and natural gas wells are constructed and utilize the hydraulic fracturing process.

How is Frac Sand used?

During the drilling process, subsurface rock units such as organic shale can contain large amounts of natural gas, oil, or natural gas liquids that do not flow freely to a well. This is typically caused by one of two reasons: the rock units or pore spaces in the rock are so small that the fluids cannot flow through them, or the unit lacks permeability. Hydraulic fracturing solves these disruptions by generating fractures in the rock by drilling and sealing the portion of the well in the petroleum bearing zone which pushes water under high pleasure into that area of the well releasing the desired substance.

Consumer Choices and Frac Sand

Approximately 40% of sand mined in the US is used for applications other than proppant, including glass, construction, foundry. Sand used for nonproppant applications is generally of lower quality. Hydraulic fracturing generally requires sand of the highest quality.

Delivered sand cost at the well head is critical in E&P decision-making as logistics can account for +60% of delivered cost, therefore transportation distance is key. Sand from TX/Other sources is closer to most demand centers.

Sand quality, defined by crush strength, sphericity and uniformity, is a critical factor in the frac sand market. For example: white sand is the highest quality and mined primarily in WI, MN and IL. Brown and “other” sand is generally of lower quality and mined primarily in TX, AR, LA, AZ, MS, MO, and Canada. Coarse grades of sand are used more commonly in oil/liquids plays. Fine grades are used more commonly in gas plays. Some sand is not used after drying due to quality, mesh size, logistics or sales constraint; some of this sand is waste product.

Frac Sand Forecast

The North American frac sand demand is forecast to recover at 17% CAGR from 2016 to 2022. Most of the demand is concentrated in a few key plays: Eagle Ford, Permian and Appalachia to account for 68% of total frac sand demand in North America in 2017. Canada will account for 7% NAM frac sand demand in 2017.

• The Sand supply landscape is complicated; quality, delivered cost, and size/grade impact customer choices:
  Sand producers with diversity have succeeded in the economic downturn, the more diversity in product mix, mesh size and customers have been a crucial factor.
• +60% of cost pertains to transportation fees, this means transportation distance is key.
• Proppant companies are trying to avoid accounts receivable exposure to financially distressed pumpers. The current frac sand market is opaque: most contracts are long-term and bilateral however some contracts tied to oil prices are being renegotiated. The market demand is volatile; increasing sand per well offsetting some of the weakness due to reduced activity.