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North American Sand Demand Robust, Says PacWest

Robust growth in hydraulic fracturing (fracking) sand demand is driving the North American proppant market, according to the latest ProppantIQ report.

PacWest Consulting Partners, which issues the quarterly reports, said proppant demand is expected to increase by 23% a year through 2016, primarily on sand growth, which should be up around 24%.

Resin-coated ceramic proppants should increase about 9% a year, while the ceramics market should rise about 2% year, PacWest analysts said.

"We forecast strong growth in the North American market for proppant due to increasing horizontal wells and frack stages, in addition to increasing proppant volumes per stage," PacWest principal Samir Nangia said. "However, there is considerable upside in our forecasts, due to the potential for faster-than-expected increases in proppant intensity," that is, proppant/well and proppant/stage.

The supply response, while lower than the actual increase in demand, also is strong with around 18% growth in capacity a year, according to PacWest. "Moderate" price increases are to be expected through the forecast period on stronger increases in demand growth than in supply growth.

"PacWest expects logistics to continue to be challenging through 2016, leading to significant price increases at the wellpad. The market constraints can be attributed to shortages in railcars, built-for-purpose frack sand truck trailers, among other factors. However, there should be improvement by 2015."

Constrained logistics have resulted in a tight market and one-off high prices for many spot market transactions, said PacWest. However, researchers estimated that more than three-quarters of market volumes are under contract. Northern white sand minegate composite prices are are seen increasing by 5% a year through 2016.

"The remainder of 2014 could be challenging due to pressure on rail from a bumper agricultural harvest, low coal inventories, and increased crude by rail, chemicals and lumber shipments," Nangia said. "Any weather-related events will only exacerbate the situation due to lack of sufficient in-play storage."

Last month Ohio-based Fairmount Santrol, which provides proppant products, including sand and sand-based services, readied an initial public offering because of "high demand" for its products (see Shale DailySept. 24). U.S. Silica Holdings Inc. also last month said it was pumping up its sand capacity in response to surging onshore demand in the proppant market, with 3.8 million tons of new northern white sand coming online by mid-2016 (see Shale DailySept. 10).

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