GlobalData Study Says Pipeline Bottlenecks Can Create Oversupply of Sand, Affecting Mine Revenues

According to a recent study by data and analytics company GlobalData on the mining industry, overabundant sand in Permian might cause trouble in the near future.  

Svetlana Doh, Oil and Gas Analyst at GlobalData, offered her view on the impact on the upstream sector. “Rapidly growing sand demand in Permian is raising questions on whether there will be enough supply of proppant available,” said Doh. “It is estimated that the total sand consumption in Permian will reach more than 77 billion pounds this year. The demand growth is mainly due to increased wells lateral length and larger amount of proppant injected per well, which grew by more than 70 percent in the last three years.”

The report said that the share of locally produced sand is expected to grow to more than 40 percent, increasing the competition to the white sand supply from upper Midwest to the Permian. 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. Many more mines are expected to be opened soon, which will likely solve the basin’s sand shortage problem over the near future.

“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,” Doh said. “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. 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.”