Latest posts by Isaac Orr (see all)
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Sand from the upper Midwest is coveted for hydraulic fracturing. It is the right size, shape and cleanness (almost pure quartz). It is also highly resistant to crushing under immense pressure, acting as a network of pillars (think of the Parthenon) keeping open the tiny fissures made in the rock in the process of hydraulic fracturing, allowing the oil and natural gas to flow up from the rock deep underground.
The boom in oil and natural gas production has sparked a boom in mining of frac sand in Illinois, Minnesota and Wisconsin. Recently, however, plummeting oil prices have resulted in some sand-mining companies laying off workers or suspending operations, leaving people in these areas wondering if the boom was really a bubble.
It’s still a boom. Although low oil prices have put a temporary damper on the demand for sand, the long-term demand is as crush-resistant as the sand grains themselves, because operators are using more sand per well and natural gas recovered from shale formations is the fuel of the future.
Over the past few years, oil and gas operators increased the amount of sand used in these operations by approximately 25% to 30% a year. Using more sand increases the amount of oil and gas (and ultimately, dollars) they can recover from the wells. This is a key reason why the demand for sand has declined only slightly even though the active U.S. drilling rig count is 60% lower than it was last October. Although double-digit year-over-year increases in demand for sand may not always occur, the trend has been promising so far.
Not long ago, former Federal Reserve Chairman Alan Greenspan urged the United States to build natural gas import terminals because he feared we would not have enough natural gas to meet the country’s needs. Now the United States is the largest producer of natural gas in the world, and the first shipments of natural gas exports will leave the country later this year. This energy 180 was due entirely to horizontal fracking for natural gas in shale-rock formations, and these formations will be increasingly important in future energy production.
Shale gas already accounts for the largest share of U.S. natural gas production, providing 40% of all the natural gas produced in the United States, and this figure will grow in the coming years as demand for natural gas for electricity generation grows from 30% of the nation’s electricity generation today to 35% by 2040, and as production from conventional natural gas wells gradually declines over time. The Energy Information Administration (EIA) estimates fracking and horizontal drilling will provide the nation with 53% of our natural gas by 2040, meaning frac sand will continue to be a highly coveted commodity for energy extraction regardless of the international price of oil.
In the short term, frac sand demand, and therefore prices, will fluctuate like other commodities such as milk and eggs. But the long-term demand for oil and natural gas will ensure these tiny sand grains will prop up our domestic energy production — and the economies of the states where the sand is mined — for decades to come.