Rock Products

DEC 2018

Rock Products is the aggregates industry's leading source for market analysis and technology solutions, delivering critical content focusing on aggregates-processing equipment; operational efficiencies; management best practices; comprehensive market

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24 • ROCKproducts • December 2018 FRAC SAND INSIDER PLG Consulting's President Taylor Robinson was part of Petroleum Con- nection's 7th Annual Frac Sand Supply & Logistics Conference in San Antonio. The event was held in late October and more than 700 industry insiders gath- ered 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 over 100 million tons of frac sand this year with numerous new mines coming online within driving dis- tance of a majority of the wells, shifting logistics focus squarely on the last mile. Changing sand/logistics buyers and new sand hauling and storage equipment continue to evolve and offer an oppor- tunity 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 swal- low 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 pro- ducers 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, rail- roads 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 prog- ress, 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 Febru- ary. 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 pro- cess is picking up steam. PLG's Robinson Makes Frac Sand Market Observations Hi-Crush Partners LP has entered into a new, long-term frac sand supply agreement for the in-basin purchase of Northern White frac sand to sup- port Chesapeake Energy Corp. and its completions program in the Marcellus and Powder River Basins. In addition, Chesapeake will utilize one Prop- Stream container crew and related logistics with the option to expand based on demand. "We are excited to reach an agreement to provide services to meet Chesa- peake's demand for Northern White frac sand and associated proppant logistics needs," said Robert E. Rasmus, chairman and chief executive officer of Hi-Crush. "We believe this agree- ment affirms the value of our Mine. Move. Manage. operating strategy, as well as the ongoing demand for North- ern White frac sand, the strength of our logistics network and our success in increasingly partnering with producer customers." Hi-Crush's PropStream service, offering both container- and silo-based wellsite delivery and storage systems, provides the highest level of flexibility, safety and efficiency in managing the full scope and value of the proppant supply chain, according to the company. Taylor Robinson Hi-Crush Enters Supply Agreement With Chesapeake

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