The demand for frac sand in western Wisconsin and southeast Minnesota exploded several years ago, spurring a dash to open mines and processing facilities and ship the valuable sand across the country for fracking operations.
But that demand has cooled significantly this year, according to industry representatives and reports from government agencies. There’s simply more sand available than the industry needs at the moment. Some of the region’s newly permitted sand mines are idle, as are loading and hauling facilities, and some operations are stockpiling sand.
“Supply and demand are closer to being in balance,” said Michael Lawson, a spokesman for U.S. Silica, the country’s second-largest silica sand producer.
That doesn’t mean the industry’s presence in the region will disappear anytime soon, though. The demand for sand, natural gas and oil products has stabilized only because the industry is caught up.
New equipment is going online for fracking operations in North Dakota, Texas and on the East Coast, and prospectors are discovering new shale deposits to mine oil and natural gas from. And there’s even speculation that international demand for the region’s sand could soon soar.
The Freedonia Group, a market research organization, estimates that the annual demand for silica sand will increase by at least 4.8 percent every year at least until 2016.
“There may be a temporary stabilization, but it’s only temporary,” said Winona County planning and environmental services director Jason Gilman.
When the demand rises again, the question will be whether Minnesota or Wisconsin will be at the forefront. A combination of looser regulations, geology and easier access to shipping channels all point to the demand for sand continuing to heat up in Wisconsin while cooling in Minnesota.
Some operations growing while others left idle
While the industry plays catch-up, some frac sand businesses are busy while others are hurting.
Paul van Eijl, a former longtime zoning administrator in Buffalo County who now works on purchasing land for Superior Sand Systems in the region, said the company is waiting for an increase in demand. Until there is, he said, the company’s new facility in Wabasha, permitted in December 2012, will likely remain idle.
“We just don’t have any contracts,” he said.
Superior Sands’ rail loading facility is an example of one of many area operations that have stalled because they weren’t permitted before the demand for frac sand leveled off.
“This time last year, the demand was definitely higher than the supply,” Van Eijl said.
By comparison, U.S. Silica, a 113-year-old company, just opened a new mine and processing facility in Sparta, Wis., and expects to have no problem selling the close to 4.5 million tons of sand it expects to mine yearly from its 15 mines and processing plants scattered across the country.
“We are confident in our ability to sell the increased capacity,” said Lawson, adding that the company expects to see 10 to 15 percent growth this year.
Winona-area business owners who ship frac sand said the demand is clearly leveling off.
“It’ll remain more stagnant,” said Tom Rowekamp, CEO of IT Sands and operator of Winona County’s newly-approved Nisbit mine. “The more mines that are open, the more sand there is — it’s the law of supply and demand.”
Nisbit mine consultant Jeff Broberg’s analysis is starker.
“There’s not a need for a single new mine,” he said. “They’re booked to capacity.”
Broberg said that initially, fracking companies needed the sand so badly they’d buy it raw—unwashed and unsorted. But as the commodity becomes more widely available, buyers are getting pickier, wanting a higher-quality product, specific-size grains and sand that can be transported cheaply and efficiently. That’s driven down the price of sand — by up to 30 percent in some cases, according to Broberg — and sent many companies across the river to Wisconsin where frac sand is more loosely regulated and can be processed and shipped more quickly.
Dan Nisbit, co-owner of CD Corp in Winona, said he’s also seen business stay flat at the commercial harbor.
His company received approval late last year double the monthly barges of sand shipped, to 48 from 24, but today continues to ship no more than a few dozen and some months ships as few as 12.
“I’m hoping we’re not missing the boat on some job creation and industry,” Nisbit said. “Winona’s very fortunate that we do have the water access and the rail access.”
Demand could rise, fall or even disappear
The sand isn’t just in demand for fracking operations, which means the industry may become a more permanent part of the regional landscape.
According to a study produced by the United States Geological Survey, in 2011, 41 percent of frac sand produced in the U.S. was used as hydraulic fracturing sand and well-packing and cementing sand.
That means nearly three-fifths of the sand mined went to other uses, primarily for manufacturing products like glass, makeup, toothpaste, roofing shingles, paint, countertops and at least 35 different car parts.
Those uses don’t always command the same prices for frac sand as fracking operations do, but they could be viable sales avenues for mining operators in the future if the demand slows for fracking.
Which it may not if new international markets appear.
“That may be a trend towards the immediate future,” Van Eijl said.
That’s because other countries, particularly those with growing middle classes and increasing demand for cars, are trying to keep pace with demand for oil.
Those countries with oil, particularly those that couldn’t reach it with older drilling methods, know fracking can be a profitable enterprise — and there aren’t many places in the world to get frac sand as high quality as what’s found in the region. Even countries in the Middle East may come knocking.
“As ironic as it sounds, shipping sand to the desert, most sand there can’t be used for this industry,” Van Eijl said.
The presence of international markets is pure speculation at this point. U.S. Silica’s spokesperson said the company, the second-largest in the country, has not been contacted by any international companies.
It may simply prove to be too expensive. It costs about $60 a ton to ship sand to Texas, Broberg said, a figure that would be multiplied many times over to ship the same ton overseas.
And if new materials come on the market, the spike in demand for frac sand could disappear as quickly as it arrived. Broberg said it’s possible that synthetics serving the same purpose, like ceramic proppants, could reduce or eliminate the need for Minnesota and Wisconsin sand worldwide.
Then there are the politics.
“It’s up to the individual countries whether they want it to happen or not,” Rowekamp said. “There are a number of countries banning it for fear that it’s going to harm their country — they’re looking at all the activists here in the United States.
The future of fracking
The future of the young industry is impossible to predict, though for now it appears that demand for frac sand will continue to grow.
“Who knows what’s going to happen in five years,” Van Eijl said. “Will the electric car take off? Will gas rise to seven bucks? Who knows.”
Van Eijl grew up in North Dakota near towns like Watford City, which by the time he left was dead.
“When I mean dead, I mean dead,” Van Eijl said. “I think they were even going to a nine-man high school football team.”
Today, because of fracking, the town is growing rapidly. The city of less than 2,000 is reaching 7,500, and city planners are scrambling to build new infrastructure to accommodate the surge.
The area has seen booms before, Van Eijl said, but this time instead of mobile homes and temporary establishments, permanent houses, massive supermarkets and other establishments are being built, which suggests that many think fracking — and frac sand — are industries here to stay.
“The reality is natural gas is going to be vital to our nation’s portfolio,” Van Eijl said. “Not just to our nation, to the world’s energy portfolio.”