Frac (sand) is back

Railroads will haul record amounts this year and in 2018 to meet the demand
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Canadian National unit sand train U75081-18 passes by the Metra station in Antioch, Ill. Powering the train is rebuilt AC44C6M No. 4016, formerly Norfolk Southern C40-9 No. 8849. Trailing the rebuilt locomotive is C44-9W No. 8276, and SD70M-2s Nos. 2661 and 8942. Video by Chris Guss
TRAINS: Rick Johnson
Railroads are enjoying a resurgence in shipments of frac sand, which may hit record tonnage levels this year and next as oil and gas drillers put more rigs to work and use much more sand per well.

American demand for hydraulic fracturing sand — which props open layers of shale so that oil and gas can escape — peaked at 53 million tons in 2014, before the energy boom went bust. The consensus forecast from Wall Street analysts is that drillers will use 60 million tons this year and 85 million tons in 2018, according to a U.S. Silica investor presentation.

This has already shown up on Texas Pacifico, the 391-mile railroad that serves drillers in the Permian Basin of Texas.

“We’re killing it,” Elizabeth Miller Grindstaff, the railroad’s vice president of sales and marketing, tells Trains. “We’re doing about 50 percent more sand than this time last year.”

The higher demand hinges in part on increased drilling activity. The number of active drilling rigs in the U.S. more than doubled — from 404 to 908 — as of late-May, versus the same week in 2016, according to Baker Hughes, an oilfield service firm. That’s well off the peak of more than 2,000 rigs operating in 2014. The other driver of demand for frac sand is high-intensity fracking, which uses up to 50 percent more sand per well. The Class I railroads that serve sand mines in Wisconsin and neighboring states have bright outlooks.

“We’ve seen frac sand grow pretty dramatically here,” Canadian Pacific Chief Financial Officer Nadeem Velani told an investor conference in March. CP hauled about 35,000 loads of frac sand last year, but by December was hauling it at a rate that would translate into 50,000 loads annually. And CP’s frac sand shipments were up by 200 percent during each week of March.

For now, the surging demand for sand is mainly coming from the shale plays in Texas and New Mexico.

“A lot of the growth is coming in the Permian Basin, which is a strength point in our franchise,” Union Pacific Chief Marketing Officer Beth Whited said during the railroad’s first-quarter earnings call.

Frac sand producers have embarked on rail-related expansions that will permit greater use of unit trains or, in some cases, allow them to build longer unit trains.

Badger Mining Corp. in April announced that it completed 1,500-foot extensions on three sidings at its loading facility in Taylor, Wis., on Canadian National. Badger now uses 100-car trains, up from 70.

“The ability to ship multiple unit trains effectively allows us to operate at the scale necessary to drive down costs in today’s market,” says Adam Katz, Badger’s sales and marketing head. “Together with our partners at the CN, we recognized that unit trains are becoming a necessity in many markets.”

Likewise, Smart Sand Inc. in April said it would expand its transload facility on Union Pacific in Byron Township, Wis., to allow it to handle unit trains.

Unit trains help drive down costs, U.S. Silica CEO Bryan Shinn said during the company’s fourth-quarter earnings call. More than half the company’s rail volume now moves in unit trains. U.S. Silica is rapidly pulling sand hoppers out of storage and expects to have its entire 5,000-car fleet back in service by the end of the year.

Sand receivers are also expanding to handle unit trains. Four new transload facilities are planned or are already under construction on Texas Pacifico, joining eight the railroad already serves.

“That’s a big jump,” Miller Grindstaff says.

NEWSWIRETrains News Wire

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