Frac sand 101: What does it take to enter the high-value frac sand market and what does it mean for aggregate producers?

Contributed

October 13, 2015

Frac sand is a type of proppant, a material consisting of uniform, specialized grains used in hydraulic fracturing. Hydraulic fracturing, or “fracking” is a technique where fluids and proppants are forced under pressure down a hole to stimulate, or crack open, the source rock to release oil and gas. Proppant props open the cracks, allowing oil and gas to be released during pumping. Fracking has been a widely adopted commercial practice in the United States since the 1980s, with explosive growth beginning in 2010, when horizontal drilling technology was combined with hydraulic fracturing to produce oil and gas from the U.S. shale plays.

The rise in hydraulic fracturing has driven demand for frac sand up from 41 million tons in 2013 to about 54 million tons in 2014. The top five producers in the United States are Unimin, U.S. Silica, Fairmount Santrol, Hi-Crush Proppants, and Preferred Sands.

Frac sand and proppant

Frac sand is a natural proppant; proppant can be manufactured from clays or polymers. Frac sand and manufactured proppants can be coated with substances, like resin, to change its physical and chemical properties. No matter the type, proppant is designed to remain in place over the life of a well. The ideal proppant is flowable to allow it to move deep into the fissures and strong enough to keep the fissures propped open without fracturing the grain.

Proppant is often specified by its strength, known as crush resistance or crush strength. It is measured in pounds per square inch (psi), with a higher psi indicating its ability to perform at greater pressure. Since proppant is used in large quantities, typically between 1,000 and 6,000 tons per well, proppant must also be economically feasible and transportable without impacting product quality.

About 92 percent of proppant used in the United States today is frac sand. Frac sand is naturally occurring silica sand that has been tested and found to meet certain physical and chemical parameters that allow for the optimal conductivity of oil and gas. Silica sands, or sands that are monocrystalline quartz with a silica content of 99 percent or greater, are preferred because they are chemically inert and do not interact with other chemicals used in the fracking fluid.

Frac sand quality 

Frac sand is subjected to quality test protocols recognized by the American Petroleum Institute (API) and the International Organization for Standardization (ISO) using methods API RP 19C and ISO 13503-2. Both the shape and strength of the sand grains predict the ability of the material to allow conductivity of oil and gas. Tested qualities include particle distribution, grain roundness and sphericity, turbidity, specific gravity, acid solubility, and crush resistance. Crush resistance, also called crush stress level, or K-value, measures the ability of the proppant to resist breaking down under pressure.

 

FracSand_Production_ProppantToday
Frac sand mining and production

Frac sand products 

Frac sand is sold in graded sizes, much like aggregates. The sand grains are sieved on woven wire mesh screens and blended to meet specifications. Products are named by their size relative to the top and bottom mesh numbers which relates to maximum and minimum grain diameter. The coarsest standard product for frac sand is 20/40. This means that 90 percent of the proppant product is small enough to pass through the 20 mesh screen (an opening of 0.85 mm) and large enough to be retained on the 40 mesh screen (0.425 mm). Each product allows for a distribution of grain sizes within the range. Other standard proppant sizes are 30/50, 40/70, and 50/140 also known as “100 mesh.”

Frac sands typically exhibit crush strengths as high as 8,000 psi for the 20/40 and 30/50 products and 10,000 to 13,000 psi for the 40/70 and 100 mesh products. Proppant products are typically specified based on the particular application in the oil field or gas field, which are dependent on a number of features including depth, pressure, and temperature of the well. Generally, shallower wells and softer source rocks can accept lower crush-resistant products. They can be as low as 2,000 to 4,000 psi for the larger 20/40 and 30/50 proppants, while 4,000 to 6,000 psi is typically specified for the finer 40/70 and 100 mesh sizes. Deeper wells and high temperature wells often require the proppant to exhibit crush resistance of 6,500 to greater than 14,000 psi.

Frac sand active mines and reserves.

Frac sand sources, mining, and production

Silica sands that are suitable as frac sand are found in several regions across the United States. Frac sand mine locations are also established based on the ability to transport  material economically to the oil and gas fields. Location is critical because the cost to transport frac sand is usually the highest contributor to total cost.

Frac sands are often identified by the names of the locations in which the formations are found. For example, “Northern white” typically refers to the high purity, clear to white colored grains of several sandstone formations found in the upper Midwest, led by Wisconsin. Within the category of Northern white sand, the La Salle County, Illinois, sands are recognized as being of superior quality and are known as Ottawa White or Ottawa District sands. Active sand mines in Texas are located around the towns of Brady and Voca; other quality “native Texas” sands are mined in Granbury and Kosse. As compared to the Northern white sands, native Texas sands tend to be coarser, the grains slightly more angular, with a weaker, though suitable, crush resistance for several fracking applications.

The U.S. Geological Survey recently compiled a map showing the areas of the continental United States where there are active silica sand mining operations and areas where silica sand may qualify as frac sand.

Similar to aggregates reserves, the potential for a frac sand mine to be profitable relies on the quality and quantity of the reserve. Frac sand mines and processing plants must be permitted just like aggregate sites with local, state, and, often, federal agencies. Permits must be obtained for air, water, land use, sensitive species, and sites of cultural significance.

One main difference between frac sand and aggregates is that the application for frac sand is in the oil field, most often a distance of 500 miles from the mine site. Like aggregates, the customer may pick up product at the plant or the producer transports it to the customer. As a distribution strategy, leading frac sand producers develop a network of frac sand storage terminals. Fairmount Santrol’s distribution network includes approximately 50 terminals, a fleet of more than 8,500 railcars, and is capable of delivering to each of North America’s major oil and gas producing basins.

Frac sand is sourced from sandstone, composed mainly of sand grains which may be unconsolidated (loose) or cemented together as a sandstone. Material is mined and transported to the processing plant by hauling, pumping, or conveying. At the processing plant, sandstone may be crushed to liberate the grains of sand from the matrix of the sandstone. The sand grains are washed and scrubbed to remove clays and silts; oversized material is removed during wet screening. Moisture is reduced from the grains by gravity (draining stockpiled sand) or mechanically by vacuuming or blowing air on the sand using filter belts or filter presses.

The moist sand grains are dried using either fluid bed or rotary drum dryers. Fluid bed dryers use forced air to move the grains across a heated plate; rotary drum dryers, common in asphalt plants, tumble the grains while the grains pass through heated air. Both types of dryers have broad applicability and are in use at plants across the United States. Whichever dryer type is used, the sand grains are less than 1 perecent water by weight upon exit. Following drying, the grains are separated into sizes using rotating or shaking mesh screens. The dried and sized sand is blended for sale to conform to product specifications and is then stored in final product silos at the plant for shipping.

Similar to aggregates, production cost per ton is a key metric for producers to monitor and control costs. Operational efficiencies such as improved scheduling, forecasting, and predictive maintenance can reduce production cost by about 10 to 15 percent. Other gains can be achieved through mine planning, plant and/or mobile equipment capacity increases, or changes to permits allowing for increased hours of operation.

Operational excellence, or OPEX, is an approach that focuses on continuous improvement of key processes like mining, drying, sizing, and shipping to reduce plant bottlenecks and drive out waste. In the near term, I believe that the producers that emphasize a culture of OPEX will reduce production cost.

Transporting frac sand to the oil field 

Total delivered cost to the oil field is the key metric to evaluate a frac sand site’s ability to be profitable over time. Just like aggregates, optimal sites have an advantage in proximity to the job site. However, most frac sand originates from the upper Midwest states and is delivered to Texas, Pennsylvania, North Dakota, and Colorado and into Canada mainly by rail, and also by truck or barge.

For this reason, producers that can ship on more than one transportation route by rail, barge, and truck have the ability to move higher volumes. Most of the top five producers have the ability to ship by unit train to the oil field. In July 2015, Unimin set a record for shipping the largest single frac sand rail delivery when it shipped a 140-car train to Elmendorf, Texas.

Operations that can ship by barge can access the Pennsylvania, West Virginia, and Ohio oil and gas plays by the Ohio River; or can move material on the Mississippi River, supplying terminals in coastal Texas.

Texas plants have the advantage to ship in-state, however, the quantity and quality of frac sand needed in the major basins exceeds the production capacity of the Texas mines. Because of the distance from the mines to the oil field within Texas, frac sand is also moved by rail in-state.

Frac sand market size and pricing

Frac sand comprises 92 percent of proppant used in the United States with a total market size of about 54 million tons of frac sand sold in 2014. In the current low oil price environment, frac sand volume sold is expected to decline by about 15 percent in 2015; however, beginning in 2016 and through 2020, market growth is expected to resume as the number of wells anticipated to supply domestic energy increases and as the price of oil begins to rebound.

Frac sand producers have become cautious due to the depressed demand driven by the slump in oil prices. However, each of the top five frac sand producers have indicated plans to grow organically or through acquisition in 2015. Given expected demand for proppant, opportunities exist for new entrants.

Opportunities for aggregate producers

In 2014, the average price of frac sand was between $50 and $60 per ton. Frac sand and aggregates mining and production have significant overlap, however, the markets they supply have little in common. Aggregate producers would be wise to investigate the potential of developing frac sand mines as long as they invest in a logistics and marketing strategy that matches their opportunity to produce.

Holly Bellmund is the president of Proppant Today, LLC a research, media, and consulting firm. She can be reached at hbellmund@proppanttoday.com. Proppant Today has released the US Proppant Market & Forecast Report: 2015 to 2020, available at www.ProppantToday.com.

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