May 24, 2019
Demand for sand to be used by the oil and gas industry in hydraulic fracturing operations in the US is set to grow by 10% in 2019 and 17% in 2020. Frac sand supply, on the other hand, is forecast to increase by 10% in 2019 and then decrease by 2% in 2020 as more Northern White Sand will come off the market. The Eagle Ford Basin in South Texas could play a pivotal role for sand price developments going forward, according to Rystad Energy.
Contracted prices of high-quality Northern White Sand will likely fluctuate between $20 and $25 per ton at the minegate in the medium to long-term, according to Rystad Energy’s latest Proppant Market Report.
Rystad Energy, the independent energy research and consultancy headquartered in Norway with offices across the globe, does not expect in-basin sand prices in the Permian to increase in the forecast period as incremental capacity additions at these mines are not as capital-intensive as at new greenfield mines.
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Frac sand, which is used in the hydraulic fracturing process, is a key cost driver for shale well drillers. Prices have been under pressure for some time thanks to oversupply in the market.
However, Northern White Sand prices increased over the past two months on the spot market and are currently above $30 per ton. The price increase has been caused by temporary effects, and most will be resolved shortly, according to Rystad Energy.
Looking ahead, the Eagle Ford Basin in South Texas will be the key market to watch in the industry.
“Adoption rates for in-basin sand in Eagle Ford will determine the future for Northern White Sand. Lower quality in-basin sand found in Eagle Ford may not be widely adopted due to higher downhole pressures found in that basin,” says Thomas Jacob, Senior Analyst at Rystad Energy.
Around 60% of activity in Eagle Ford occurs at average treatment pressures greater than 8,000 psi. This would suggest lower adoption rates in the basin, which is good news for Northern White Sand.
“In-basin sand mines in Eagle Ford have struggled to reach desired utilization levels in recent months, but we expect this issue to be solved in the near term,” Jacob added.
Frac sand demand is forecast to reach 181 million tons in 2024, representing 8% annual growth from 2019 to 2024 (compound annual growth rate, CAGR). The Permian is expected to grow from 55 to 85 million tons in the same time period.
Frac sand supply is set to reach 239 million tons in 2024. Rystad Energy expects 35% to 40% of Northern White Sand supply – considered the gold standard of the industry with respect to sand quality – to come off the market by the end of 2020.
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About Rystad Energy
Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. Rystad Energy is headquartered in Oslo, Norway with offices in London, New York, Houston, Aberdeen, Stavanger, Moscow, Rio de Janeiro, Singapore, Bangalore, Tokyo, Sydney and Dubai.