Wisconsin frac sand under pressure from rival products

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Competing with mines unearthing cheaper-to-ship sand in Texas, the frac-sand-mining company Hi-Crush recently announced it would be idling part of its plant on Highway Q in Whitehall.

Although Hi-Crush will continue to run its so-called wet-plant operations at the site — where clay, silt and other forms of sediment are washed away from sand, the decision has resulted in the layoff of 37 employees. This is expected to be temporary, but the duration “is unknown at this time.”

“The layoff has been prompted by unforeseen business circumstances,” wrote Mark Skolos, general counsel for the company, in a filing to the Wisconsin Department of Workforce Development. “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 and the derivative impact of these pressures on the sand industry.”

Hi-Crush still has plants up and running in Tomah, according to the release, as well as in Augusta and Blair.

But there are concerns about the industry’s prospects in Wisconsin. Even though the sort of white sand mined in Wisconsin is still generally deemed superior for fracking purposes, the cost of shipping it is causing it to lose some ground to rival products found in places closer to mines.

Throughout these market changes, demand in the frac-sand industry is in fact increasing. According to IHS Markit, which provides analyses of industries and markets, there will be demand in 2018 for 168 billion pounds of what is technically known as proppant — a category that includes frac sand. If the prediction proves well founded, that will be a 27 percent increase from the previous year. And the percentage growth rate is expected to be in the double digits for years to come.

Proppants are used for hydraulic fracturing, a mining method that can tap oil and gas deposits that were often hitherto inaccessible. In the industry, the sort of white sand found in Wisconsin and neighboring states is still considered a superior product because of its uniformity and other characteristics. The chief alternative is brown, or regional, sand. It may not have as many of the desirable characteristics as white sand but is nonetheless often less expensive because it can be mined near oil and gas operations in states such as Texas.

Samir Nangia, IHS oilfield services analyst, said in a recent Wisconsin Public Radio story that 13 new sand mines are operating in the Permian Basin of west Texas. He said buying local allows energy companies to avoid paying $50 a ton to ship sand from Wisconsin.

“The thing to keep in mind is that we have enough local sand now between the Permian and the Eagle Ford to satisfy most of the demand from Texas with local sand alone, which is definitely a problem for the mines in the Midwest,” he said.

Jim Wicklund, Credit Suisse managing director of equity research, said in the WPR story that Wisconsin mines have lost market share and that they are having to increasingly sell to companies that are drilling for natural gas in states such as New York, Pennsylvania, Ohio and West Virginia. The Bakken oil fields of North Dakota will remain a market for Wisconsin sand, he said.

“So, sand prices look to ratchet down the cost curve to the marginal producer, and while many Wisconsin mines are very efficient and well down the cost curve, the rail cost that has to be added, the delivered cost to the well, is the better cost curve to use,” Wicklund said. “So, some Wisconsin sand mines, the most marginal producers, are likely to close over the next three years or so.”

Nangia agreed, adding that some Wisconsin mines might end up being bought by larger companies.

To be sure, all signs still suggest that the demand for frac sand will continue to increase. That said, Wisconsin has a battle on its hands to ensure announcements such as Hi-Crush’s in Whitehall will be the exception rather than the rule.