The Red Wing Eagle reports that Goodhue County extends silica sand mining moratorium for another year. The county board voted to unanimously to continue the interim ordinance through September 6, 2013.
Goodhue County will have more time to consider the issue, and state resources may be on the way to assist local governments as they draft ordinances to deal with the wave of industrial-scale frac sand mining and processing operations.
EQB takes testimony and a petition
Dan Haugen writes Should state help Minnesota counties study frac sand mining? in for Midwest Energy News:
The scale of that [frac sand mining] development, often in scenic areas, has also drawn considerable public opposition.
City, county and township officials, too, have unanswered questions about the impact of frac sand mining on the environment, public health, and roads and bridges. Several southeastern Minnesota cities and counties (as well as in Wisconsin) have established moratoriums to give officials some time to try to decide how best to regulate the new industry.
A state senator and a group of citizen petitioners are now calling on Minnesota officials to play a bigger role in helping answer these questions.
“These are going to be big operations. They’re going to be around for a long time. We need to make sure that we have all the bases covered when we move forward with it,” said state Sen. John Howe, a Republican from Red Wing.
Specifically, he and the petitioners are asking the state’s Environmental Quality Board to order something called a generic environmental impact statement for frac sand mining in Minnesota.
The board, which is made up of state commissioners and citizens appointed by the governor, will hear public testimony on Wednesday about whether to order the study. They received a petition on the request last week.
The EQB has yet to post minutes or other documents produced in Wednesday's hearing, but helpful documents are posted on the EQB's meeting agenda page.
Haugen reports that Howe contunues to support local control--he voted against the Vandeveer bill to strip local govenments of some important tools--but thinks that the cost of studying the coming regional frac sand mining bubble is too high for local taxpayers to bear alone:
Howe doesn’t think local governments necessarily have the resources to explore all of the issues around frac sand mining as carefully as they should be vetted.
“If we don’t make sure that we have policies in place and address issues, [mining companies] are going to come in, extract the resources, then you’re not going to have funds left over to repair the roads. You’re not going to funds left over for reclamation,” he said.
Howe said he supports local control, and notes that he voted against a bill last year that would have limited local governments’ ability to set moratoriums on wind farms or other developments. The state-level study wouldn’t prevent cities, counties or townships from making decisions, nor would it exempt companies from preparing project-specific impact statements. The results would supplement the information available to local officials.
Go read the entire article at Midwest Energy News.
PIM: Frac sand mining issues to dig in during next legislature
Politics in Minnesota's Paul Demko reports in Sand-mining boom on legislative agenda:
A notable stop on the trail to the oil boom in western North Dakota lies along the Mississippi River in Minnesota and Wisconsin.
Along the river valley’s surface there are vast deposits of silica sand, also known as quartz sand, that’s an essential part of the hydraulic fracturing technique of producing oil.
The usually accurate Demko slips here. First, one finer grade of silica sand is used in fracking for natural gas, so frac sand mining isn't just about oil.
Second, Wisconsin and Minnesota's frac sand mining rail yards aren't a notable stop on the trail to the oil boom in western North Dakota. In July, Federal Reserve senior writer Phil Davies wrote in the Fedgazette article Sand surge:
Many new, large mines are situated on rail lines, the most economical shipping method. (Rail patterns dictate that most frac sand mined in the region goes to shale oil and gas fields in the eastern and southern United States, rather than to the Bakken.) For example, mines in Chippewa and Barron counties ship sand on small, rural rail lines to connect to the networks of Canadian National, BNSF and other continental railroads. [emphasis added]
Only the Canadian Pacific--recently partnered with Smart Sand, the frac sand corporation upon whose band Tim Pawlenty sits--has a direct line to the Bakken Fields in North Dakota. Canadian National ships to the Bakken, but must shift sand loads to BNSF tracks or use trucks for part of the trip to the Bakken.
The rail lines and barge traffic access on the Mississippi River are what attract firms like Texas-based Windsor-Permian to purchase sites in places like Hay Creek Township in Goodhue County--and thus draw the attention of Senator Howe's (R-Red Wing) constituents--who are politically conservative.
Other than that quibble, the firewalled piece is pretty good. Demko notes that conservation watchdog Rick Hansen (R-Dakota County) is hearing a lot about frac sand mining as he campaigns, but disagrees with Senator Howe's request for a statewide GEIS:
While Hansen and Howe are both calling attention to the rise in frac sand mining in the state, Hansen doesn’t support the GEIS option.
“I don’t think that’s the right way to go,” Hansen said. “I think we have some precedent with previous GEIS where they take a great deal of time and a great deal of money and they delay or defer the decisions that would have been made anyway. Our job as a Legislature is to have the hearing and gather the information and look at what we can and what we should do.”
Demko also notes last sessions frac-sand related amendments offered by Hansen and Rep. Andrew Falk:
In 2012, frac sand mining had a low-key role on the legislative agenda. Hansen and Rep. Andrew Falk, DFL-Murdock, offered floor amendments to the omnibus environment bill that addressed the issue. Hansen withdrew his amendment. Falk’s amendment, which dealt with land reclamation costs once a mine closes, was defeated.
Subscribe to PIM if you are able--this sort of reporting deserves to be supported.
Boom or bubble?
Some fear that natural gas fracking itself--and thus the silica sand mining industry itself--might pan out as a bubble, rather than a boom with a legacy of prosperity. And then there's the rush to open new mines, banking on the current inbalance of cheap sand with demand for gas and oil and the location of gas and oil bearing shale.
In Energy services companies head to the sand pit, Houston Energy Magazine explores the development of sand mining in Texas:
The fast-rising demand for frac sand, combined with rising transportation costs, has created a quickly growing sand services industry among Houston companies, with mines cropping up across Texas.
Despite bold claims that the demand for sand will hold on indefinitely, IPOs for mining companies show a slightly hazier picture, with some reluctance among investors.
Yesterday, CBS MarketWatch reported in Hi-Crush Partners IPO rises after price cut:
Hi-Crush Partners LP (US:HCLP) ended its first session as a public company at $20 a share for a $3 gain above its $17 offering price in buying that accelerated by the closing bell.
Ahead of trading, the Houston firm priced its IPO below its estimated level of $19 to $21 per unit. . . .
. . .Hi-Crush also drew a discount after U.S. Silica Holdings Inc.’s (US:SLCA) IPO fell below its $17 IPO price in May after its debut in February, he said. U.S. Silica traded at $12.20 a share on Thursday. . . .
The story we were getting was lack of interest in Hi-Crush at the $19-$21 estimated price range level,” said John Fitzgibbon of IPOScoop.com. “Econ 101 — supply versus demand. At the $17-per-unit level, there was a book [enough buyers to float the IPO]. Barclays found the right balance ... and the deal got out the door.”
Perhaps it's the structure of the limited partnerships, but other offerings have been discounted:
“People get twitchy when they see it’s a limited partnership,” Menlow said.”There have also been a lot of secondary offerings from partnerships such as Markwest Energy Partners (US:MWE), and some of those deals have traded below their offering price.”
A friend with sources in the industry also reports that there's some concern among analysts that the rush to open new mines will create an oversupply of frac sand--causing a situation similar to that faced by fracking firms themselves earlier this year. Fuel Fix reported in A tough break for fracturing companies:
. . . As shale gas production exploded in recent years, a flurry of small fracturing companies launched and the biggest players in the business rapidly expanded their crews.
“There was this wave of supply coming on, too much supply,” said Dennis Smith, director of corporate development for oil field services company Nabors Industries. “It created, overnight, a big excess of pumping capacity.”
In addition to that oversupply, demand for hydraulic fracturing in shale gas fields has been waning. Natural gas prices sank during the unusually warm winter, when the fuel is usually in high demand for home heating. Now some producers are closing their natural gas wells and abandoning shale gas fields. . .
In short, the success of the industry is creating over-supply and causing a shakeout. Right now, the sand is in short supply, but the rapid ramping up might creat a glut--and a lot of holes in the ground if facilities are idled or worse.
At the beginning of August, Industrial Minerals reported that industry players had experienced some weakening of sand prices. In Frac sand spot prices fell by 18% for Q2, says US Silica, John Ollet reports:
US Silica, like Carbo Ceramics, has observed a weakness in the oil and gas markets. The company indicated that this was largely due to a rapidly declining natural gas rig count and a slowing oil rig count as well as increased supply from new entrants.
However, there isn't a pure fewer rigs/less demand for sand formula at work in the gas and oil fields. Chemical Week reported in early July:
Proppant demand is forecast to grow 15%-20%/year even if rig counts are flat, because "petroleum engineers have discovered that the more proppant [sand] they put down the well, the more hydrocarbon they get out," U.S. Silica (Frederick, MD) says CEO Bryan Shinn. U.S. silica is the number-two producer of frac sand in North America by volume. Frac sand accounts for 90% of the oilfield proppants market, Shinn says.
Proppant demand is also driven by the rise of horizontal drilling, a recently developed technique that uses more proppant per well than older techniques, Shinn says.
Despite this caveat, Bluestem suspects that the market for silica sand might not be as bullish as those seeking to rush into hauling off farmland and bluffs proclaim.
Photo: Aerial view of a Wsiconsin frac sand facility. Photo by Jim Tittle. Used by permission.