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“Feast to famine” — Wisconsin frac sand production cut in half

By LeAnn R. Ralph

COLFAX  —  Now that the price of oil has dropped by 50 percent or more — down to $45 a barrel on September 18 — frac sand production in Wisconsin also has dropped by 50 percent.

The West Side hosted by Rich Kremer, an hour-long call-in talk show on Wisconsin Public Radio, talked to three people in the frac sand industry September 14: Rich Budinger, past president of the Wisconsin Industrial Sand Association and vice-president of operations for Fairmount-Santrol out of Menomonie; Rick Shearer, the CEO of Superior Silica Sands; and Roberta Walls, an industrial sand specialist with the state Department of Natural Resources who is taking the place of Deb Dix.

The growth in the frac sand industry in West Central Wisconsin was linked to the growth of hydraulic fracturing, Budinger noted.

In the hydraulic fracturing method, water, sand and a mix of chemicals are pumped underground to “fracture” the rock, making it easier to extract oil and natural gas.

Kremer cited a study by an analytical firm, PacWest, that estimated sand production would decrease by 22 percent this year. The actual numbers, however, appear closer to a 50 percent reduction, he said.

The frac sand industry in Wisconsin is currently at a 40 percent to 50 percent reduction, Shearer said.

Some of the sand mine companies in West Central Wisconsin are scaling back or suspending operations, Kremer noted.

Preferred Sands in Bloomer suspended operations, while other companies have laid off quite a few of their workers, he said.

“To put it simply, what a difference a year makes,” Shearer said.

The frac sand industry in Wisconsin experienced a 30 percent growth in 2014 over 2013, he said.

Perfect storm

Shearer called the new technology for horizontal drilling in hydraulic fracturing “the perfect storm” because it generated more demand for frac sand.

“It did impact the market significantly,” he said.

But now that oil prices have decreased, hydraulic fracturing is not as cost-effective.

“We’ve gone from feast to famine in a sense. The dynamics of the market changed dramatically. This is  a cyclical business,” Shearer said.

Global economies have dropped off in their demand for oil and gas, and at the same time, there has been an increase in the production of oil from OPEC nations (Organization of the Petroleum Exporting Countries), he said.

According to the OPEC website, members include Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela.

Representatives for OPEC said they were trying to kill off shale drilling in the United States, Kremer said.

“I think it’s very positive because it says we have started to gain independence from the Middle East oil producers. I think overall that’s very much a positive,” Budinger said.

During the 1970s, it was the opposite, he said, noting that there were oil embargoes and an energy crisis.

“What a distance we’ve come from those days,” Budinger said.

More applications

Even though frac sand production in Wisconsin has been cut in half, the DNR has received eight new applications for frac sand mines in the past year, Walls said.

Kremer wondered why companies would be willing to spend $50 million or $100 million on frac sand facilities when the price of oil is so low.

Investors are looking at the big picture. Frac sand is lucrative, and down cycles will not continue indefinitely. Companies want to be in a good position when frac sand rebounds. The long-term picture is positive, Shearer said.

Unstable

One caller to the radio show said that the “boom and bust nature” of frac sand makes it an unstable economic activity.

“The way to make frac sand profitable for the state is for all of us to pay more for gas,” he said.

Shearer said that while his company has not directly laid off any of the employees on the payroll, the company has replaced some of the independent contractors with employees.

Budinger said Fairmount-Santrol has made similar adjustments.

DNR staff

Another caller wondered how the state budget cuts would affect DNR staff who were monitoring air and water quality impacts for the sand mines.

Sand mines had quite a few violations early on when the facilities were first coming online, and runoff events led to enforcement action, Walls said.

Certain processing plants are required to monitor for PM10 particulates, and people can look at a map on the DNR website to see where air monitoring is required, she said.

The area where the sand mines are located has received quite a lot of rain this summer, but the DNR has not received any complaints about runoff from the sand mines, Walls said.

Walls never answered the question about how the state budget cuts might affect the DNR’s ability to monitor air and water quality impacts of the sand mines.

Critics say PM10 monitoring is ineffective because it does not detect the fine particles that cause a lung disease known as silicosis.

Neighbors

Another caller noted that Budinger and Shearer had referred to the frac sand industry as “cyclical” and said in addition to the boom-and-bust cycles of sand mining, some landowners have become wealthy from frac sand while the property of their neighbors has lost value.

The effect of mining on the value of neighboring properties has been a concern of the industry for years, Budinger said.

Communities can get together to work out questions about frac sand mining through a comprehensive land use plan or zoning, he said.

“When you become part of community, it’s important to listen to your neighbors,” Budinger said.

The Wisconsin Industrial Sand Association’s code of conduct includes companies working with their local communities to make a positive impact and not a negative impact, he said.

Texas Brown

Kremer cited another conclusion by PacWest indicating other sand, such as “Texas Brown,” and ceramic proppants that could be used instead of sand, would encroach on the Wisconsin sand industry.

Wisconsin frac sand, he noted, is known as “Northern White.”

Shearer said ceramic proppants are an expensive man-made option.

“I don’t see ceramics being a threat to natural high-quality sand like we are blessed to have in Wisconsin,” he said.

Some companies will gravitate toward using other sand found in Texas, Illinois, or Missouri, but there will always be a demand for Wisconsin frac sand, Shearer said.

About 40 percent of the sand mined in Wisconsin is used for other purposes besides hydraulic fracturing, such as glass sand and foundry sand, Budinger said.