As supply meets demand, state’s frac sand boom slows

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By Kate Prengaman
Wisconsin Center for Investigative Journalism

For more than a year, a 30-foot-tall pile of unwanted sand towered over 3 acres on Claude Riglemon’s property. The price for the sand dropped as this stockpile was ready for sale, so the 120,000 tons of sand just waited.

Riglemon isn’t a miner; he runs a cranberry operation north of Tomah. He jumped into the frac sand frenzy when a mining company offered to dig him a new reservoir in exchange for the rights to the sand it removed.

Wisconsin’s sand is in demand for use in hydraulic fracturing, or fracking, a method of unlocking previously trapped oil and natural gas that has boomed in recent years.

Frac sand mining has surged in a few years from a handful of sites to almost 100 permitted facilities. Although no official figures are available, it has been estimated that the state’s frac sand industry will create more than 2,500 jobs. Meanwhile, some residents are concerned about traffic increases, dust pollution and environmental damage.

The sand is valuable, but mining it profitably depends on both the cost of transportation and on market prices, which fluctuate.

“The demand just isn’t there,” Riglemon said. “Western Wisconsin is all sand; this is not a scarce commodity. So the big issue becomes logistics. The cost (of transporting the sand) freezes the little guys out.”

Trucks finally started hauling the sand away from Riglemon’s land in late November. He said he thinks the company, which he declined to name, had good intentions, but was caught by surprise when the price for sand dropped.

Getting sand to oil and gas operations in North Dakota or Pennsylvania is a serious logistical challenge, said Tom Beekman, regional planning engineer with the Wisconsin Department of Transportation. Sand that’s mined far from rail lines or barges might be too expensive.

Large sand mine operators typically sign long-term contracts with both buyers and railroads to produce and sell a steady supply of sand, Beekman said.

Only about a quarter of Wisconsin’s operating and developing sand facilities have rail access on site, but most of the largest operations do.

Sand prices range widely depending on grain size, strength and location. But industry experts agree that the prices have come down significantly from the $100-plus per ton that ignited Wisconsin’s mining boom.

For smaller operators who planned for higher prices, the frac sand boom might turn out to be a bust.

Supply soon to meet demand

The price of frac sand depends on the demand for its use in fracking.

Shale gas production exploded in the past decade, increasing 2,400 percent nationally from 2002-12, according to the U.S. Energy Information Administration. This boom created a surplus of natural gas this year, which lowered gas prices, leading to lower prices for sand.

And as more of the new sand mines in Wisconsin begin production this year, the supply is catching up with the demand.

Beekman said his research shows the nationwide demand for frac sand is likely about 40 million tons a year, and “we might have enough (facilities) in place right now.”

Rich Budinger, regional manager for Wisconsin Industrial Sand Co., a subsidiary of Fairmount Minerals, which has three operating Wisconsin sand facilities and one more in development, said price fluctuations are part of natural market cycles.

“If prices continue to drop off, a competitive market will be established,” Budinger said. “Experienced companies have seen that before, and we’re prepared for it.”

The boom slows down

Eight new mines or processing facilities were proposed during the past four months, compared to more than 60 between June 2011 and June 2012.

Some permitted mine sites have not begun construction. Beekman suspects some are waiting to see whether sand prices go back up.

The lower prices are not deterring everyone. Trempealeau County leads the state, with nine mines in operation and 11 more in development. Kevin Lien, the county director of land management, reported applications still are coming in.

“It’s not crazy like it was a year ago, but it hasn’t let up,” Lien said. “I think people are speculating that the drop in price is just economics, and it will come back up.”

Pros and cons to market’s wane

If planned mines don’t develop, landowners might have the most to lose, depending on whether the mining company agreed to pay them upfront or provide a share of the profits.

On the other hand, communities rarely make investments to support or entice proposed mining projects, Beekman said, so they have nothing to lose if mine plans fall through.

“The counties that might lose out are those lifting moratoriums, hoping to get new mine development now that they have regulations in place,” Beekman said. “They might not because the market is close to saturation.”

That might be the case in Dunn County, where a yearlong moratorium expired in October. Cleo Herrick, the county zoning administrator, said the county has yet to receive a single new application.

That’s OK with Barb Flom, a Dunn County landowner who turned away a frac sand company interested in her property. She believes mining exacts too high a price on communities.

“I would be happy if the whole industry left,” Flom said. “Dirty air, dirty rivers; these are the costs that local citizens are paying.”

The future of frac sand

Most industry experts agree frac sand mining is not going to disappear anytime soon, despite the recent natural gas industry slowdown.

“As long as they allow fracking, I don’t see (frac sand mining) going away,” said Lance Pliml, president of the Wisconsin Counties Association Frac Sand Task Force.

In fact, Budinger said lower natural gas prices don’t necessarily mean bad news for the sand industry. Affordable energy could lead to a resurgence of American manufacturing. More manufacturing means more demand, long term, for both energy and sand, he said.

Claude Riglemon is just happy that his days in the frac sand industry are almost over. He supports the industry, but he describes his own experience as frustrating.

“I would tell anybody that was going to get involved to be very careful and know who they are dealing with,” Riglemon said.

“Right now, it might be a little Wild West, but in a couple of years, the quick-buck operators will wash out. The boom will subside. The big guys will provide the market with what they need.”