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Energy price declines have directly impacted the amount of hydraulic fracturing (fracking) activity taking place in North America since the end of 2014, inextricably linking the fate of the US industrial frac sand industry to volatile global oil and gas markets.
By Bruce McMichael
US states including Wisconsin, Texas, Illinois and Minnesota dominate the frac sand supply sector, owing to the abundance of frac-grade sand available in these locations. However, the sector these states serve - fracking - has been hit hard by tumbling energy prices over the past 12 months.
Volumes of frac sand shipped around North American roads, railroads and waterways have fallen in parallel with weaker oil prices and, as a result, frac sand suppliers are anticipating reduced demand throughout the remainder of 2015.
US Silica Holdings, one of the US's largest frac sand producers, recently told Jefferies Equities Research that it predicts a 15% drop in its sand demand during this year.
Nationally, the frac sand sector is worth $4.2bn a year, with shale gas and oil accounting for 72% of annual production.
Costs & consequences
Shale oil and gas activity has dropped off significantly after enjoying a four-year boom, and many newly-drilled wells are being shuttered, at a cost of up to $3m each.
In North Dakota, for example, there is a backlog of between 800 and 1,000 uncompleted wells, of which around 125 must be finished by the end of June 2015, since state regulation requires that drilling lasts no longer than 12 months.
However, in May 2014, a major oil tax incentive known as the 'large trigger' was expected to come into effect across the state. Should this happen, the majority of these wells will be exempt from a 6.5% oil extraction tax for up to two years, marking a significant cash saving.
The trigger aims to boost Bakken - a vast shale oil reservoir stretching across at least four western US states - production during periods of depressed oil prices. The plan is for the trigger to come into play when the West Texas Intermediate (WTI) crude price averages below $55.09/barrel (bbl) for five consecutive months.
Frac sand logistics
The cost of moving sand depends on a range of parameters, including the number of round trips the...