Fracking Opens up an Entire New Industry

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Fracking Opens up an Entire New Industry

By Shelley Goldberg, Commodities Strategist

We’ve been providing non-stop coverage of the natural gas boom here at Wall Street Daily – and how the fracking industry is pushing the market to new heights.

Well, now it’s time to increase our focus on the little-known sand industry. Seriously.

It’s enjoying a massive upswing as fracking operations continue to mount.

Demand for this global resource is skyrocketing – mainly due to the fact that it’s crucial to fracking operations.

And while it’s not a traded commodity, there are a few tricks you can use to cash in on the trend…

Sand: The Next Big Energy Play

As Tim Maverick has mentioned in Wall Street Daily before, hydraulic frackers use sand, along with water and chemicals, to blast though shale beds to release crude oil and natural gas.

Sand is used as a “proppant” to keep cracks and pores in the shale rock open after it has been fractured.

According to the Frac Tracker Alliance, there are 1.1 million active gas and oil wells in the United States as of February 2014. This number doesn’t include the many wells that are inactive and potentially ready to be re-fracked.

And each well requires anywhere from one to four million pounds of sand. Industry experts estimate that 25 to 30 million metric tons (mmt) of sand are used for fracking alone!

Thus, as the fracking industry grows, so does the need for sand.

Indeed, demand is still expected to rise by 30% or more throughout 2014. And frackers are expected to need nearly 95 billion pounds of sand this year.

To put that in perspective, the United States produced 52.5 mmt of industrial sand in 2013, which represents over 37% of the world’s total production.

Independent research backs this up, too . . .

PropTester recently stated that North American demand was trending over 25% of annualized 2013 demand and well over 50% in select regions.

On top of production for our own uses, the United States is also doing some serious exporting . . .

Approximately 8.4% of the U.S. domestic production of sand and gravel is sold to international users.

Of course, as demand rises, prices are enjoying a solid uptrend, as well. In 2013, the value of high-quality sand rose to an average of $75 per metric ton, and rates continued to appreciate this year.

That amounts to $149.6 million for the sand needed to cover all the active wells in the country.

So how do you invest in the continued uptick when sand isn’t a traded commodity?

U.S. Boasts Biggest Sandcastle

Since futures and options on sand don’t exist, you’ll need to access the equity markets.

There are already a number of private equity deals taking place, due to the growing interest in the sector. Recently, Kohlberg Kravis Roberts (KKR) invested $680 million into Preferred Sands, one of North America’s largest producers.

The competition has a mix of public and private companies, with the top tier holding the majority of the market share.

As our staff writer Tim Maverick pointed out a few weeks ago, U.S. Silica Holdings, Inc. (SLCA) and Emerge Energy Services LP (EMES), owner of Superior Silica Sands, a fuel processing and distribution company and a silica sand producer are both good options.

Another larger public company is Hi-Crush Partners (HCLP), a monocrystalline sand producer and supplier.

Large ceramic proppant producers include CARBO Ceramics, Inc. (CRR) and Saint-Gobain (SGO).

Beyond our borders, there are also a number of Chinese ceramic proppant manufacturers, such as Sichuan FultonTec Co. Ltd.

Readers could also consider the many ancillary businesses around the sand sector, including transportation, logistics, storage, and testing services.

According to U.S. Silica, an average of 25 railcars of sand are needed to frack just one well. Thus, thousands of railcars move frac sand each year. Investors should look to BNSF, the Canadian National Railway Company, or Union Pacific Railroad (UNP).

The fracking boom is going to be here for a long time, and frac sand will continue to play an integral part in the exploitation of unconventional resources, as will the infrastructure that supports it.

Good investing,

Shelley Goldberg

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By Shelley Goldberg