Oct. 11–An increase of locally produced sand could contribute to an excess supply, affecting mine revenues, whenever drilling activity reduces its pace due to the logistics of bottlenecks in the Permian Basin, an oil and gas analyst at GlobalData said.
GlobalData is a data and analytics company. Analyst Svetlana Doh stated in a news release the share of locally produced sand is expected to grow more than 40 percent, increasing the competition to the white sand supply from upper Midwest to the Permian.
There is currently a rapidly growing sand demand in the Permian Basin that has raised questioned of whether there will be enough supply of proppant available, but many mines are expected to be opened soon, which will likely solve the Basin’s sand shortage problem over the near future, Doh said.
“In fact, there are at least five sand mines opened in Permian by Hi-Crush, Black Mountain and U.S. Silica in 2018 with a proppant supply of 35 billion pounds per year,” Doh said.
She said it is estimated that the total sand consumption in the Permian Basin will reach more than 77 billion pounds this year.
The Odessa American previously reported there are 11 operational mines in the West Texas area. In the past year, several companies announced plans to build more than two dozen mines in response to the demand for the fine sand sought for fracking oil wells.
The demand growth is mainly due to increased wells lateral length and larger amount of proppant injected per well, which grew more than 70 percent in the last three years, Doh said.
“Despite the worse quality of regional sand, it is much cheaper, and operators choose to mix it with premium white sand to keep their costs down. In fact, Pioneer Natural Resources acquired an interest in U.S. Silica’s La Mesa sand facility, which is expected to provide the operator with four billion pounds of sand per year by 2020,” Doh said.
“However the ample local sand sources can easily translate into an excess supply whenever drilling activity reduces its pace due to the logistic bottlenecks in the Permian Basin. If this is persistent sand prices will fall benefiting operators that don’t face any pipeline restriction.”
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