Frac sand and proppants have seen a surprise turnaround in demand projections during the first half of 2016, according to a recent report from Tudor Pickering. Many investors and industry observers left this segment of the oil market for dead at the beginning of the year, however, a perfect storm of factors has caused a surprising turnaround in this segment.
The report highlights some of the reasons for the turnaround in frac sand demand (and consequently a higher price for frac sand):
- White sand pricing at the minegate should reach $65+ per ton vs. the current $15 to $20 per ton.
- 2017 demand could be well above 2014 levels and 2018 sand demand could end up to doubling the 2014 levels.
- Well operators are using more proppants per well than initially forecast as they increase lateral length and push proppant per-lateral-ft. well above current levels.
- Proppant per horizontal well from ~8mm lb. today to ~11mm lb. in 2017 with further upside in 2018 and beyond.
- With activity increasing in the Permian Basin proppant demand is expected to increase significantly as the Permian catches up with other basins in terms of proppant usage.
- This unexpected surge in proppant demand could cause logistics issues across the oil and gas space as operators scramble to get a hold of enough sand to execute their high intensity frac driven field development plans.
According to Brandon Dobell, an oil and gas analyst at William Blair, sand usage overall should rise even if oil prices stay within a range of $40 to $60 a barrel because drillers are now using two to three times more sand per well than they were three years ago.