Even with the drilling pullback, growth of the hydraulic fracturing (fracking) sand manufacturing business continues in Wisconsin, where it also presents a big growth opportunity for local natural gas distribution utilities, according to WEC Energy Group Inc. CEO Gale Klappa.

There are 110 frack sand manufacturing operations in western Wisconsin, compared to 10 such operators five years ago, Klappa said on a quarterly earnings conference call. “That industry literally has just burgeoned,” he said.

Klappa said sand operations are down this year because of the global crude oil price nosedive. “Of those we are serving with natural gas, there has been about an 11% decline in their natural gas demand; however, we’re not serving anywhere near all of those customers,” he said. Most still use propane, but that will change in the months and years ahead.

In the immediate past, WEC did not have the utility backbone pipeline system in place to support taking natural gas to these sand producers. Now, it does have with the opening Nov. 1 of its 85-mile west-central gas pipeline expansion project, Klappa said. “That will allow us to sign up more of the sand operations; we’re going to see growth in the therms we deliver to that industry, simply because be haven’t been serving many of them during the boom times.”

He said one of the state’s major fracking sand operators just signed a contract with WEC’s gas utility to switch from propane to natural gas. “The ones we are not serving now are drying their sand with propane, and their preference would be to move to less costly, more predictable natural gas.”

The heart of WEC’s natural gas distribution utility territory — Wisconsin, Minnesota and Michigan — represents some of the largest concentrations of propane use in the United States, said Klappa, emphasizing this is another reason he is bullish on natural gas growth.

Switching out propane is the major reason Klappa is eyeing the biggest future growth in WEC’s natural gas utilities to come in Wisconsin, Minnesota and a lesser extent in Michigan, and not in Illinois where there is little propane use. “For example, in Minnesota, there was recently legislation passed that, in essence, reduces the upfront costs for customers to switch to the natural gas delivery network from propane,” he said. “It allows more of those capital costs to be put into rate base as opposed to individual customers having to pay for it.”

In the past, Klappa has said the new pipeline will address multiple strategic issues: gas reliability, meeting demand from customers converting from propane, and serving the growth of the sand mining industry. State approval of the pipeline lateral included franchises to begin bringing natural gas distribution service to 10 small towns along the pipeline route.

Last year, U.S. onshore operators pumped millions of pounds of sand and ceramic proppants into their fractures at a furious pace to improve estimated ultimate recoveries from new wells and recompletions, and they initially thought that pace would continue going into 2015 (see Shale Daily, Nov. 12, 2014).

The sand operators were envisioning more and more of their product being used, backing out ceramics. They saw never ending wells, tighter spacing and a lot more sand per well, and this bullishness was reinforced late last year when Halliburton Co. extended an agreement with sand provider Hi-Crush to increase annual volumes through 2018.