After American frackers learned that sand could allow them to maximize the amount of oil released from shale reserves, the sand industry's fortunes have closely followed those of the oil industry. Commentators predict that rising oil prices will create an economic boom for sand. America's growing domestic fracking industry also comes with the added consequence of decreasing American dependence on foreign oil manufacturers.
Frackers supply oil corporations, so rising oil prices mean bigger profits for frackers. Because costly goods are always found in increasing market quantities, higher oil prices will increase the supply of oil--and this additional oil must be generated by increased fracking. To maximize their limited shale reserves and optimize their oil output, frackers will purchase larger quantities of sand.
The industry-changing discovery made by frackers boils down to a simple principle: increasing the amount of grit in horizontal oil wells results in a higher oil yield from hydraulic fracking. (Oil wells are holes drilled in the earth, from which petroleum can be pumped or released.) Frackers aim to release oil reserves locked within shale and tight-rock formations--but because shale is so dense, drillers seeking oil must first blast highly pressurized jets of water into wells to crack the shale into tiny pieces. Then, they pour in sand to keep those cracks open. The more sand is poured, the longer the fractures last.
Due to the frackers' frenzy to apply their new technological advantage, there has been a doubling of sand usage per well in the past five years. Current usage estimates hover at 8 million pounds.
Shortly after the "sand trick" became common industry wisdom, frackers managed to refine their discovery. They learned that there is no difference between using white sand and brown sand while fracking. Many companies previously assumed that the stronger white sand would outperform the brown sand. But they eventually learned that brown sand (which is 25% cheaper) is equally good at getting the job done.
Nevertheless, despite this second innovation, American fracking operations have been in decline since its peak, in 2014--which was the year of the oil price crash. In the past two years, most drilling rigs have been unused.
But there is good news. Thanks to the crash, experts now predict that any rise in fracking will trigger a sand boom. Even though crude prices have dropped 20% since June (as of August 2016), major oil companies like Schlumberger Ltd.
This industry insight has generated a wave of recent optimism from companies linked to oil, which translates into an influx of business for sand-mining states like Texas and Arkansas. The largest publicly traded frack-sand miner in America, US Silica Holdings Inc
It may come as no surprise that US Silica shares have more than doubled this year. Other suppliers of sand and sand-based products have had similar gains: Fairmount Santrol Holdings Inc
The bottom line: even a small rise in oil prices (enough to continue its rebound trend) will be enough to trigger a record-breaking spike in sand demand. Estimates from Bloomberg Intelligence and Jefferies Group
