Analysts: Wisconsin's volatile frac sand industry has stabilized
Jan. 7—EAU CLAIRE — After more than a decade of alternating boom-and-bust cycles, the regional frac sand industry appears to be stabilizing — at least for now.
That's the assesssment of UW-Eau Claire geology professor Kent Syverson, who also serves as a consultant for the frac sand industry.
"It's adjusted now to a different base level. Now it's kind of in equilibrium I would say," Syverson said.
While he doesn't expect the industry ever to go back to the way it was from 2011 to 2014 when new mines and processing plants were popping up like dandelions across west-central Wisconsin to take advantage of the region's silica sand reserves, Syverson said the surviving facilities seem to have found reliable markets for their sand, including some that shifted to producing for other industries such as glassmaking.
Wisconsin mines needed to find alternate destinations to ship their sand to replace the giant market that mostly evaporated when energy companies built a number of sand mines closer to oilfields in Texas.
The production expansion pushed down prices and enabled oil drillers to get local sand for less than the cost of shipping it from Wisconsin, forcing several frac sand companies to pause or shut down Wisconsin operations in recent years. Syverson estimated that fewer than half of the frac sand facilities built in the region — mainly the lowest-cost producers — remain viable.
However, the freefall has stopped and the market for the northern white sand produced in Wisconsin is strengthening once again, said Brandon Savisky, senior research analyst at IHS Markit.
Annual production capacity for northern white sand has increased from about 12 billion tons in early 2020 to 21 billion tons now, a rise of roughly 75%, Savisky said, noting that Wisconsin remains the nation's No. 2 shipper of sand behind Texas.
"Demand for sand has definitely picked up all across America," Savisky said, "and northern white sand was probably more stable than local sand throughout last year."
While some Wisconsin sand is being shipped by rail to Texas once again in response to trucker shortages that are part of nationwide supply chain issues related to the COVID-19 pandemic, much of it is being delivered to oilfields in western Canada, North Dakota and Appalachia that haven't developed local sand supplies, he said.
"The landscape has gone from chaotic anxiety as we came out of 2020 to becoming more cautiously optimistic as mines began to restart and activity recovered," Savisky said. "Now pretty much all sand mines are working near capacity."
Source Energy Services, which owns and operates Wisconsin frac sand mining facilities in Weyerhaeuser, Blair and Preston, has been the leading supplier of frac sand to the Western Canadian Sedementary Basin for close to a decade, said SES spokeswoman Meghan Somers.
While the Calgary, Canada-based company also supplies other basins in the U.S., the Canadian market will continue to be a focus, she added.
Somers agreed that the switch to local sand, combined with low commodity prices, has made it especially difficult for Wisconsin sand industry participants.
The vast majority of the mines producing northern white sand are in Wisconsin, with the bulk of them located within 80 miles of Eau Claire.
The sand is used in hydraulic fracturing — the drilling technique commonly known as fracking that involves injecting a mixture of sand, water and chemicals deep into underground wells to force oil and natural gas to the surface. The sand is used to hold open fissures in the rock.
Northern white sand, prized by fracking companies for its coarseness, durability and the spherical shape of its grains, is still considered to be of higher quality than the sand produced in Texas, but producers have developed methods to make the lower quality sand work well enough to satisfy their needs.
Most importantly to producers, the Texas sand is cheaper because it doesn't have to be shipped more than 1,000 miles by rail from Wisconsin to the oil and gas deposits in the Permian Basin in west Texas and southeast New Mexico.
The possibility of more Texas trucking disruptions leading to a surge in orders for northern white sand in the Permian Basin is a wild card that Syverson said he's watching, because it could spark another temporary boom in the demand for Wisconsin sand.