Oct. 05–A combination of competition and logistics snarls have led to the recent idling of Midwestern frac sand mines, but the slowdown may be temporary.
Hi-Crush notified the state on Tuesday that 37 people will lose their jobs by Nov. 9 as a result of an unrelated shut-down of the Whitehall plant.
“We have no choice but to halt production at our Whitehall plant due to industry wide conditions related to the drastic decrease in demand for sand,” Hi-Crush attorney Mark Skolos wrote in his letter to the Department of Workforce Development.
Covia, another of the nation’s largest publicly-traded industrial sand producers, announced plans to idle four Midwestern mines and slow operations at another three, including one in Menomonie.
To understand why, look to Texas.
This summer saw the opening of new mines in Texas that offer cheaper sand to drillers in the Permian basin, which accounts for the bulk of the nation’s oil production.
While “northern white” sand from the Midwest has traditionally been the preferred product for propping open fissures in deep underground rock formations, the cost of getting it to Texas can account for up to three quarters of the wholesale price.
In response, penny-pinching oil producers have achieved similar initial results with lower quality local sand, said Brandon Savisky, senior market research analyst for IHS Markit.
A “giant supply” increase in that local sand supply has created “an extreme challenge for northern white companies” this fall, Savisky said.
Meanwhile a lack of pipeline capacity has led some Permian oil producers to cut back, further softening the sand market. Savisky said that crunch could last until at least the summer of 2019.
Savisky expects the frac sand industry will see another wave of mergers this year as producers attempt to diversify their markets.
Kent Syverson, an industry consultant and chair of the geology department at UW-Eau Claire, said depleted sand budgets have also contributed to a slow-down in drilling.
“There’s kind of a normal slow-down that occurs at the end of the year,” he said.
While Wisconsin mines cannot compete with Texas mines on price, Syverson said they may hold some market share based on the quality of the sand, and are well positioned to serve other regions like Canada, North Dakota and Appalachia.
The fact that Hi-Crush continues to wash sand in Whitehall is an indication the company expects some demand this winter and spring.
“If they didn’t think there was a demand they’d shut down the wash plant,” he said.
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