Politics, geology and infrastructure suggest that Wisconsin’s frac sand boom will continue while Minnesota’s cools
The demand for frac sand in western Wisconsin and southeast Minnesota exploded several years ago, spurring a dash to open mines and processing facilities and ship the valuable sand across the country for fracking operations.
But that demand has cooled significantly this year, according to industry representatives and reports from government agencies. There’s simply more sand available than the industry needs at the moment. Some of the region’s newly permitted sand mines are idle, as are loading and hauling facilities, and some operations are stockpiling sand.
“Supply and demand are closer to being in balance,” said Michael Lawson, a spokesperson for U.S. Silica, the country’s second-largest silica sand producer.
That doesn’t mean the industry’s presence in the region will disappear anytime soon, though: The demand for sand, natural gas and oil products has stabilized only because the industry is catching up.
New equipment is going online for fracking operations in North Dakota, Texas and on the east coast, and prospectors are discovering new shale deposits to mine oil and natural gas from. And there’s even speculation that international demand for the region’s sand could soon soar.
The Freedonia Group, a market research organization, estimates that the annual demand for silica sand will increase by at least 4.8 percent every year at least until 2016.
“There may be a temporary stabilization, but it’s only temporary,” said Winona County planning and environmental services director Jason Gilman.
When the demand rises again, the looming question will be whether Minnesota or Wisconsin will be on the forefront. A combination of looser regulations, geology and easier access to shipping channels all point to the demand for sand continuing to heat up in Wisconsin while cooling in Minnesota.
Some operations growing while others left idle
While the industry plays catch-up, some frac sand businesses are busy while others are hurting.
Paul van Eijl, a former long-time zoning administrator in Buffalo County who now works on purchasing land for Superior Sand Systems in the region, said the company is waiting for an increase in demand. Until there is, he said, the company’s new facility in Wabasha, permitted in December 2012, will likely remain idle.
“We just don’t have any contracts,” he said.
Superior Sands’ rail loading facility is an example of one of many area operations that have stalled because they weren’t permitted before the demand for frac sand leveled off.
“This time last year, the demand was definitely higher than the supply,” Van Eijl said.
By comparison, U.S. Silica, a 113-year-old company, just opened a new mine and processing facility in Sparta, Wis., and expects to have no problem selling the close to 4.5 million tons of sand it expects to mine yearly from its 15 mines and processing plants scattered across the country.
“We are confident in our ability to sell the increased capacity,” said Lawson, adding that the company expects to see 10 to 15 percent growth this year.
Winona-area business owners who ship frac sand said the demand is clearly leveling off.
“It’ll remain more stagnant,” said Tom Rowekamp, CEO of IT Sands and operator of Winona County’s newly-approved Nisbit mine. “The more mines that are open, the more sand there is — it’s the law of supply and demand.”
Nisbit mine consultant Jeff Broberg’s analysis is starker.
“There’s not a need for a single new mine,” he said. “They’re booked to capacity.”
Broberg said that, initially, fracking companies needed the sand so badly they’d buy it raw — unwashed and unsorted. But as the commodity becomes more widely available, buyers are getting pickier, wanting a higher-quality product, specific-size grains and sand that can be transported cheaply and efficiently. That’s driven down the price of sand — by up to 30 percent in some cases, according to Broberg — and sent many companies across the river to Wisconsin where frac sand is more loosely regulated and can be processed and shipped more quickly.
Dan Nisbit, co-owner of CD Corp. in Winona, said he’s also seen business stay flat at the commercial harbor.
His company received approval late last year double the monthly barges of sand shipped, to 48 from 24 but today continues to ship no more than a few dozen and some months ships as few as 12.
“I’m hoping we’re not missing the boat on some job creation and industry,” Nisbit said. “Winona’s very fortunate that we do have the water access and the rail access.”
A tale of two states
The frac sand industry has created significant and similar controversy on both sides of the river.
But the differences in the way government agencies have handled the issue in the two states are stark, as are the barriers — or lack thereof — to profiting from the sand.
Minnesota cities and counties have made significant efforts to stop or regulate operations, with several counties approving year-long moratoriums or limiting the number of active mines, and the debate reached the state Capitol this spring, where lawmakers considered a statewide moratorium and approved a new permitting process for any mine located near a trout stream.
In Wisconsin, by comparison, there has been no debate at the state level and some counties have been open for business since the start of the boom, like Trempealeau County, which has permitted more than two dozen new operations and has been estimated to contain as much as 25 percent of the state’s mines and processing facilities.
The permitting process can take several months in Minnesota, and more if environmental reviews are required. In Wisconsin, by comparison, some mines have been approved in weeks.
In the past two years, Wisconsin went from having 15 mines and processing plants to almost 110, according to a February 2013 report by the Minnesota Department of Transportation.
During that same period, Minnesota went from seven mines to 20, and six or so processing plants.
The drive to open new mines continues in Wisconsin, where Trempealeau County still gets new applications or questions every week, while it’s almost disappeared in parts of Minnesota. Winona County, for example, hasn’t had a permit application in more than a year.
Part of that difference isn’t just about regulations — it’s about geology.
While both southeast Minnesota and western Wisconsin are rich in frac sand, the sand is much more abundant in Wisconsin, according to a March 2013 report by the Minnesota Environmental Quality Board.
The ability to ship the sand and still turn a profit is also a factor.
Southeast Minnesota has little rail capacity for hauling sand to major transportation hubs, the EQB report said, making trucks the only viable option for most operations. And truck traffic has been one of the most contentious issues of frac sand mining, with several governments placing restrictions on numbers of trucks and charging operations a fee for hauling.
The last hurdle for the frac sand industry in southeast Minnesota is that it can be difficult and expensive to ship frac sand using existing rail and barge shipping avenues. In Winona, for example, the majority of the capacity is filled with agricultural commodities.
All of which points to Wisconsin continuing to become an even larger player in the frac sand industry.
“The locations in Wisconsin are going to be supplying that demand,” said city of Winona planner Carlos Espinosa, who has studied the industry and led the city’s efforts to draft new regulations for frac sand.
Demand could rise, fall or even disappear
The sand isn’t just in demand for fracking operations, which means the industry may become a more permanent part of the regional landscape.
According to a study produced by the United States Geological Survey, in 2011, 41 percent of frac sand produced in the U.S. was used as hydraulic fracturing sand and well-packing and cementing sand.
That means nearly three-fifths of the sand mined went to other uses, primarily for manufacturing products like glass, makeup, toothpaste, roofing shingles, paint, countertops and at least 35 different car parts.
Those uses don’t always command the same prices for frac sand as fracking operations do, but they could be viable sales avenues for mining operators in the future if the demand slows for fracking.
Which it may not if new international markets appear.
“That may be a trend towards the immediate future,” Van Eijl said.
That’s because other countries, particularly those with growing middle classes and increasing demand for cars, are trying to keep pace with demand for oil.
Those countries with oil, particularly those that couldn’t reach it with older drilling methods, know fracking can be a profitable enterprise — and there aren’t many places in the world to get frac sand as high quality as what’s found in the region. Even countries in the Middle East may come knocking.
“As ironic as it sounds, shipping sand to the desert, most sand there can’t be used for this industry,” Van Eijl said.
The presence of international markets is pure speculation at this point. U.S. Silica’s spokesperson said the company, the second-largest in the country, has not been contacted by any international companies.
It may simply prove to be too expensive. It costs about $60 a ton to ship sand to Texas, Broberg said, a figure that would be multiplied many times over to ship the same ton overseas.
And if new materials come on the market, the spike in demand for frac sand could disappear as quickly as it arrived. Broberg said it’s possible that synthetics serving the same purpose, like ceramic proppants, could reduce or eliminate the need for Minnesota and Wisconsin sand worldwide.
Then there are the politics.
“It’s up to the individual countries whether they want it to happen or not,” Rowekamp said. “There are a number of countries banning it for fear that it’s going to harm their country — they’re looking at all the activists here in the United States.
The future of fracking
The future of the young industry is impossible to predict, though for now it appears that demand for frac sand will continue to grow.
“Who knows what’s going to happen in five years,” Van Eijl said. “Will the electric car take off? Will gas rise to seven bucks? Who knows.”
Van Eijl grew up in North Dakota near towns like Watford City, which by the time he left was dead.
“When I mean dead, I mean dead,” Van Eijl said. “I think they were even going to a nine-man high school football team.”
Today, because of fracking, the town is growing rapidly. The city of less than 2,000 is reaching 7,500, and city planners are scrambling to build new infrastructure to accommodate the surge.
The area has seen booms before, Van Eijl said, but this time instead of mobile homes and temporary establishments, permanent houses, massive supermarkets and other establishments are being built, which suggests that many think fracking — and frac sand — are industries here to stay.
“The reality is natural gas is going to be vital to our nation’s portfolio,” Van Eijl said. “Not just to our nation, to the world’s energy portfolio.”