Demand for proppant used in hydraulic fracturing increased sharply in first-half 2014, prompting price increases that are expected to continue into 2015 even as the cost of transportation to get proppant to the well site is increasing.

Pricing for sand has risen roughly 20% since 2012 and is likely to rise another 20% during the course of 2014, according to participants in a Hart Energy survey of proppant suppliers.

Rising demand—and the attendant price increases—stem from multiple factors including the growing role of slickwater fracks, which are gaining marketshare even in markets like the Bakken that were previously dominated by crosslink gels. Slickwater represents the sledgehammer approach to hydraulic fracturing and employs greater volumes of proppant than other well stimulation methods.

Secondly, operators are adding more stages per lateral and placing them closer together with a larger number of perforation clusters between each stage. Operators also are pushing lateral length beyond 1,525 m (5,000 ft) in many cases, further boosting stage count. In a few atypical cases, operators have fracture-stimulated as many as 80 stages in a single lateral, though it is more common to see 35 to 40 stages per lateral vs. 17 to 19 one year ago.

Other factors include the move to pad drilling, which has increased the number of completions relative to rig count, coupled with increases in drilling levels in regional markets such as the Permian Basin. More than 300 rigs are drilling horizontally in the Permian, creating organic growth in regional proppant demand even as incremental sand use per stage grows.

“Sand usage is up 40% at each well,” one wellsite delivery service provider told Hart Energy telephone surveyors.

This increase in downhole intensity is the main story in 2014, just as the transition to pad drilling and batch completions constituted the main industry narrative in 2013 or gains in drilling efficiency dominated the discussion in 2012.

Demand is higher for all grades of sand, including 20/40, 30/50, 40/70 and 100 mesh grades. Sand represents 87.2% of proppant demand among industry representatives participating in the Hart Energy survey, with ceramics accounting for 7.5% and resin-coated sand representing the remaining 5.3%.

Ceramic suppliers told Hart Energy that use of high-end ceramic proppants is growing, particularly in the Bakken as operators attempt to reduce the decline rate and increase first-year production.

“The volumes for ceramic will grow with the new interest in decreasing the decline rate here,” said a Bakken area ceramic supplier. “Wells completed with ceramics show 30% increased production.”

Demand for sand is coinciding with bottlenecks in transportation, exacerbating tight supply conditions. Those shortages were particularly acute in the Bakken during the extended winter of 2014. Hart Energy survey respondents cited shortages of locomotives and the rail cars used to transport sand as the bulk commodity competes for rail space with crude oil or other cargoes. One respondent said there is a shortage of 20,000 rail cars across the country.

“We are bringing our imported proppant in through Baltimore because the rail coming from the east is less congested,” one top-tier ceramics supplier said. “We quit shipping through Texas.”

A Midcontinent mining and sand supplier reports looking for alternatives to rail.

“Rail is such a challenge at present,” the supplier said. “We put a big focus on shipping as much as possible by river barge. Every barge gives us 1,500 tons of storage while in transit.”

A top-tier Texas supplier is adapting to transportation bottlenecks by expanding regional storage facilities.

“We are building new, bigger terminals to handle 24,000 tons of storage in both the Eagle Ford and Permian,” the supplier said.

Comments