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PLG’s Robinson Makes Frac Sand Market Observations


PLG Consulting’s president, Taylor Robinson, was part of Petroleum Connection’s 7th Annual Frac Sand Supply & Logistics Conference in San Antonio. The event was held in late October and more than 700 industry insiders gathered to discuss the most relevant topics in a dynamic industry that has hit an inflection point this year. Following are his observations.

The U.S. oil and gas industry will likely consume more than 100 million tons of frac sand this year with numerous new mines coming online within driving distance of a majority of the wells, shifting the logistics focus squarely on the last mile.

Changing sand/logistics buyers and new sand hauling and storage equipment continue to evolve and offer an opportunity for efficiency improvements.

Future demand will likely be steep as major producers increase production, especially in the Permian. However, demand will not be enough to swallow the added supply. What’s more, all of this is dependent upon healthy oil prices.

Overall conference takeaways:
• Local in-basin sand is now firmly entrenched in the Permian and is quickly growing share in the Eagle Ford, SCOOP/STACK, Haynesville and possibly the DJ shale plays. While there are still rumblings about quality issues, most are saying it is “good enough” and can cut the total delivered cost around $50 per ton depending on the play. As more producers jump on the bandwagon, it makes it harder for the late adopters to deny the benefits of local sand. This paints a challenging picture for the Northern White producers, railroads and railcar manufacturers/lessors.

• The rapid build-out of in-basin sand has flipped the market to oversupply starting this summer. Consequently, spot pricing for Northern White sand has plummeted to as low as $20 per ton FOB plant. In-basin sand pricing has held up a bit better in the Permian, but with more supply coming online yet this year and a fourth-quarter slowdown in progress, pricing will be under pressure. With such a rapid drop in market pricing, sand buyers that signed long-term contracts in the $50 per ton range are looking for ways to renegotiate their agreements.

• Fourth quarter frac sand volumes suddenly look weak due to budget exhaustion and Permian takeaway challenges. It seems that producers ate up their budget early in the year which enabled rapid production increases. With dropping oil prices, it appears many producers will wait it out until their new budgets are in place after the new year. And with some earlier than expected pipeline expansions in the Permian starting now, things look to heat up by February. Expect record-level sand volumes as large pipelines come up to speed in west Texas in late 2019.

• Direct sourcing (aka debundling) of frac sand and other oilfield supplies by oil and gas producers continues to increase and will likely become the majority by 2020 as more of the larger producers begin to take greater control of their supply chain. With a growing number of sources of supply for sand, equipment and last mile logistics services, the transition process is picking up steam.