In-Basin Sand Mines Reshaping Proppant Supply Fundamentals

The frac sand industry is in a transition phase with significant new capacity being built out across most major shale plays in the US. Frac sand demand is expected to increase 46% and reach a record-breaking 118 million tons in 2018. Sand companies are investing heavily in regional In-Basin mines in major shale plays to meet the increased demand.

Rystad Energy is tracking regional sand mines being built to serve major US shale plays including Permian, Eagle Ford, Mid-Con, Haynesville and DJ Basin. Sand companies are evaluating the quality of sand reserves in all major shale plays in the US including the Marcellus/Utica region and Bakken to determine the viability of establishing sand mines locally.

Prior to 2014, Northern White Sand was the primary supply source of frac sand, followed by Brown Sand mined from the Hickory formation in Central Texas. Frac sand was mined in Wisconsin, Illinois and Minnesota and sent via rail to the various shale plays in the US. 75% of frac sand supply in the US was Northern White Sand in 2014, followed by Brown Sand at 17% (Figure 1).

The downturn in 2016 forced E&Ps to focus more on costs. Sourcing frac sand from local mines and eliminating rail and trans-loading points in the supply chain was a major driver to reduce proppant costs. This led to sand companies building sand mines in West Texas to serve the Permian Basin. We call this sand type In-Basin Sand. Rystad Energy expects 45 to 50 million tons of nameplate frac sand capacity to become available by the end of 2018 and for this amount to increase further in the first half of 2019.

The model of each basin having its own local sand supply has moved from the Permian to other shale plays in the US. The Eagle Ford, Mid-Con, Haynesville and DJ Basin are other shale plays that are moving in this direction. Rystad Energy expects sourcing local sand would result in ~50% reduction in proppant costs for operators.

These significant investments in In-Basin Sand has led to significant changes in the frac sand supply landscape (Figure 2). The Bakken and Marcellus/Utica region are the two remaining major shale plays where the In-Basin Sand model has not materialized yet. There is definitely interest among operators and sand companies to evaluate the viability of building In-Basin Sand mines in these regions. Significant risks exist for Northern White Sand producers in the medium to long term if these regions move to the local sand supply model.

Our latest frac sand supply projections indicate an increase of 47% in 2018 and a further 27% in 2019 (Figure 3). There are still players that prefer using
Northern White Sand in their well design due to superior quality than In-Basin Sand.

Rystad Energy is closely following the proppant market with its Shale Intel solution. The Shale Intel – Proppant Market report tracks demand, supply, pricing and logistics for proppant at a granular level and looks into key trends and insights through interviews with on-the-ground field experts, market research and proprietary data from Rystad Energy’s Shale database – ShaleWellCube.

About the author: The Shale Intel Team at Rystad Energy

The Shale Intel team at Rystad Energy led by Ryan Carbrey, SVP Shale Research, uses advanced methodology incorporating interviews with on-the-ground field experts, market research and proprietary data from ShaleWellCube to analyze the North American oilfield service segments, namely, drilling & completions activity, pressure pumping, proppant, water management and stimulation chemicals markets. The reports are delivered in combination with regular commentaries and webinars on market moving news, and access ability to the underlying data and analyst interaction. For more information, please email – [email protected]

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