Yves here. Some time ago, during the previous shale boom, we highlighted some articles that pointed out that difficulty in getting fracking sand could constrain some operations. If oil prices remain high, which is a big boon to shale players, sand scarcity may again throw sand in the gears of these wells.
This situation should also serve as a reminder that the discussions of supply chain issues may serve to obscure how much of the impediment is actual supply, meaning natural resource shortages, as opposed to bottlenecks in manufacturing or transport or both.
By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice
- U.S. shale drillers will be eager to boost production as oil prices near $100 per barrel, but a looming frac sand shortage may stop them.
- Combined with rising labor costs, a potential trucker shortage, and inflation, a frac sand shortage could become a major headache for shale producers.
- U.S. oil production is sure to increase over the year, but if these cost problems aren’t solved then expectations will have to be tempered.
U.S. shale producers are tempted to boost production more than previously expected as oil prices rallied to over $90 a barrel with a potential to hit $100 soon. Yet, a supply chain bottleneck for a key material for fracking could slow the coming shale boom.
Frac sand in the biggest shale play, the Permian, is in short supply, threatening to slow drilling programs at some producers and sending sand prices skyrocketing. This adds further cost pressure to American oil producers, who are already grappling with cost inflation in equipment and labor shortages.
Total U.S. crude oil production is set to rise to an average of 12.0 million barrels per day (bpd) in 2022 and 12.6 million bpd in 2023—an annual record high and 200,000 bpd above last month’s estimate, the EIA said in its February Short-Term Energy Outlook (STEO) last week. The previous annual average record of 12.3 million bpd was set in the pre-pandemic 2019.
Crude oil production in the seven most prolific U.S. shale basins is set to increase to 8.707 million bpd in March—a 109,000 bpd rise over February’s 8.598 million bpd, and an increase of 271,000 bpd from January’s tally, the EIA’s latest Drilling Productivity Report showed.
However, cost pressures and sand shortages could slow the growth going forward.
“Ultimately it will slow everyone down if it doesn’t resolve itself,” Michael Oestmann, CEO of private equity-backed Tall City Exploration, told Reuters, commenting on the sand supply crunch in the Permian.
Not enough frac sand at a time when oil prices topped $90 a barrel could limit the growth as more and more shale firms – especially privately-held ones – seek to boost production materially to capture the high oil prices.
$100 oil could unleash a lot more U.S. oil production, in theory, but supply chain constraints and record-high sand prices are likely to temper growth, analysts say.
“Although high prices would, in theory, trigger a burst in tight oil production, acute supply chain bottlenecks, a lag between price signals and its impact on production, and winter weather-related disruptions will slow growth. Added to this are expectations that spot sand prices will rise to a $50-$70 per ton range – a level unheard of in the industry’s modern history – which will hit operators’ wallets,” Artem Abramov, Rystad Energy’s head of shale research, said earlier this week
Sand tightness, cost pressures, and labor shortages could be deterrents to a massive outburst in U.S. shale production, even if most public companies were to abandon restraint and risk angering Wall Street by seeking to significantly raise output.
Oilfield services firms, while hailing the coming of a “multi-year upcycle” in shale, are warning against sand tightness and labor and cost pressures.
“There is no doubt, the much-anticipated multiyear upcycle is now underway,” Jeff Miller, CEO at the biggest fracking services provider, Halliburton, said on the Q4 earnings call last month. But he also noted that “As activity accelerates, the market is seeing tightness related to trucking, labor, sand, and other inputs.”
During the fourth quarter, Halliburton saw the North American market moderate growth slightly in completions due to the holidays, sand supply tightness, and lower-efficiency levels typically experienced in the winter months, Miller said.
Liberty Oilfield Services, which bought last-mile frac sand logistics firm PropX during the COVID-inflicted downturn, also flagged “recent sand bottleneck challenges in the Permian Basin, both of sand availability and last mile transportation,” as chief executive Chris Wright said last week.
If sand and trucking shortages are not resolved soon, U.S shale producers – especially privately-held drillers who are already increasing production – may not benefit from $90 and $100 oil as much as they have thought.
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Productivity in fracking wells has rocketed the past few years – this, along with the surge in oil prices, has rescued the industry (unfortunately). Part of the trick of getting the most oil/gas out of a frack well is to inject as much frack sand as possible into the micro cracks. The amount of frac sand per well has therefore being increasing steadily as the industry gets better at it. Frac sand is not normal sand – because of the high pressures required, you need sand with a very high quartz content (essentially, its the sparkly sand you see in the aquarium in your local Chinese restaurant). There are vast amounts of this sand available in some northern areas – especially Wisconsin. You only really find it in post glacial areas over older shield (volcanic) rocks, so only usually in northern latitudes – this is one reason why fracking hasn’t been economic in many places outside the US. But its not evenly distributed and its expensive to truck.
So unfortunately, this isn’t a bottleneck likely to last too long. Once enough trucks can be got to work they’ll fix this problem. Not good news for anyone living next to one of those sand quarries.
here in the northwest texas hill country, we have “Brady Brown” frac sand…sharp sand…derived from granite plutons shot through with quartz.
from the top of the hill to my north(itself an ancient beach made of this particular sand) at night, you can see the Voca sandmines’ lights…some ten+ miles to the northeast.
they shut down a few years ago…killing the Brady, Texas economy…and prior to covid(something to do with financial shenanigans and fraud)…but it looks like they’re up and running again.
i hear that Brady Brown isn’t as good as the pennsylvania and wisconsin sand, but it’s right here…a mere 150-200 miles from the Permian.
too, wife’s uncle manages yet another sand plant over by London, Texas…which is at the southern end of the same ancient beach that i live on top of, and that runs up past Voca, Texas. He says they’re back up to full capacity.
when the negative oil price happened, early pandemic…i really hoped that the Permian was over…because eventually, I’ll be fighting the sand mining corpse again.
me and my neighbors won the last round, and prevented a sand mine 2 miles to my north…but i fear that victory had more to do with oil economics and the above mentioned finance shenanigans than our sturdy defense.
air quality and the enormous water wastage of those plants are what’s at issue.
the particulates spewed are very fine silicates and even finer quartz dust…everybody who works at those plants that i have known ends up with silicosis.
even without a sand plant, during dry seasons we get great clouds of such dust from local ranchers and hay farmers having bad timing(plowing it all up just as a dry windy period happens)
venture out on the county roads around Voca, and there ain’t a bird or an insect to be heard…and no fish in that part of the San Saba River, either….and every leaf and blade of grass has a patina of dust.
during the last fight, i taught all my redneck right leaning neighbors what a caltrop was,lol
and introduced them to the concept of “Direct Action”.
Yes, this is the huge problem with sand and gravel quarrying. Because its seen as relatively benign compared to other forms of extraction, it frequently evades even minimal regulation. Its often not even seen as ‘mining’ – the term is avoided by the industry for obvious reasons. I’ve wandered through dozens of sand and gravel pits in my professional life, and most are small and don’t do too much harm – in some cases they can even be a benefit. But the large scale ones are hellish to live nearby, and there is often a very strong incentive for the miners to cut costs to the minimum and walk away when it suits them.
The odd aspect of this story is that it is no secret that world supplies of sand is running out and NC has at least twice featured articles talking about this. This has been an ongoing problem going back years. So the question is why did not those shale drillers buy up sand supplies and stockpile them somewhere handy for future use. It’s not like that sand was going to rot or rust or anything. Or were their operations too ‘optimized’?
The supply of ‘frac sand’ (Industrial sand) is on a scale equal to Molybdenum and Silver. Construction sand is immensely larger in quantity,(though quality varies and consumed in monster quantities). As PK said, frac sand is high quartz content and geographically limited. It is also used in glass making, metal casting, metal production, chemical production, paint and coatings, and ceramics. It likely will always be in short supply (or priced according to prevailing demand).
The producers of frac sand use equipment and processes that the shale drillers were unlikely to purchase for the long term in a Boom or Bust industry.
Shortages of fracking sand provide an opportunity to remind everyone that when dealing with energy production, it is not absolute quantities of energy that are important, but SURPLUS energy. Our collective prosperity basically equals surplus energy. When vital raw materials, such as fracking sand, become less available, it likely translates into more energy required to produce the sand, and hence less surplus energy in the gas production. This is an ongoing and relentless process, and without putting the situation into its proper context, the conversation veers off into meaningless jabberwocking. A related question, how do we deal, politically, with gradual but persistent declines in prosperity?
EROEI=”energy return on energy invested”.
if it cost a “barrel of oil equivalent” to extract, refine and use a “barrel of oil equivalent”, that’s a break even situation. If it costs more such energy to extract and use, it goes into the negative.
this is why ethanol is stupid…costs more energy to get the ethanol, than it would to just burn the natgas, etc used to produce the ethanol.
ergo, ethanol is a welfare program for Cargil.
if one looks at where USA oil and gas is being extracted these days…spent fields like the Permian…deepwater offshore….that is hardly low hanging fruit.
negative EROEI.
gone are the days when one could hammer a pipe into the ground(or shoot one’s hillbilly 10 ga shotgun) and “up from the ground comes a bubblin’ crude”.
the Permian is what concerns me most directly…due to the sand issue.
that field peaked(as in Peak Oil) in the early 70’s.
fracking is, literally, scraping the bottom of the barrel.
we are NOT the “New Saudi Arabia”(which likely also peaked sometime in the 80’s…dad knew a guy who was, at the time, one of like 10 people in the world who knew how to do lateral drilling and fracking…what he called “bottle brushing”, and was sent to Kuwait and SA to do just that…which, as he said then, is not something one does to an oil field unless it’s on it’s last legs)
Does the shortage of fracking sand also mean there could be shortages of poly silicon used for solar panels?
No, its a different type of sand. Frac sand is high quartz content, its a much rarer and more specialised resource. Before fracking came along, its main uses was in ultra hard concrete for military use and fish aquariums.
Solar silicon or computer silicon is usually a mined quartz ore, not sand.
The only solar based silicon production facility that I know of is shut down, its in Moses lake, washington.
https://pv-magazine-usa.com/2020/10/29/rec-silicon-could-restart-poly-production-at-moses-lake/