Ceramic proppant outlook: trying to build a market on sand

Building on sand is a metaphor that resonates with many ceramic proppant suppliers attempting to seize opportunities in the recovering hydraulic fracturing market in North America. The current landscape suggests a cautious optimism.

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After a turbulent phase marked by steep declines in oil prices, proppant manufacturers and oilfield service providers are now experiencing a wave of recovery. This rebound is largely fueled by a moderate rise in oil prices, significant increases in proppant loading levels, extended lateral drilling, and an uptick in the number of frac stages completed.

Recent performance indicators for proppant suppliers and users reveal a positive trend, starting from Q4 of last year and anticipated to continue through to this year and beyond. Initial estimates of U.S. proppant consumption in 2023 were around 55 million short tons, with potential growth to 80 million tons in 2024. However, revised figures suggest demand may actually reach 75 million tons this year and exceed 100 million tons next year.

Despite this promising demand for proppants, the spotlight is significantly on frac sand, which continues to overshadow ceramic options. Pickard Trepess, Managing Director of FRAC PT FZE, highlights at the upcoming Oilfield Minerals & Markets Forum in Houston why silica sand is often favored over ceramic proppants for certain shale frac operations.

Historically, during the peak years of 2011-2014, frac sand occupied about 80% of the proppant market share, with approximately 10% each for ceramic proppants (CP) and resin-coated sand (RCS). However, shifting market strategies of exploration and production (E&P) companies towards cost-effective fracturing techniques have reshaped this landscape, with frac sand now claiming around 95% of the market, relegating CP and RCS to a mere 5% share.

Significant Idling of U.S. Ceramic Proppant Production Capacity

The decline in the market, along with the increasing preference for frac sand, has led to a substantial portion of U.S. ceramic proppant production capacity remaining idle, extending since early 2020. According to industry insights, almost 80% of U.S. CP production facilities are non-operational, allowing only a potential operational capacity of 680 million pounds per year, some of which might still be underused. Obtaining precise figures has become challenging due to fluctuating production rates and non-disclosed outputs among leading producers.

Data from early 2023 shows that Carbo Ceramics achieved a meager 18% utilization of its total CP plant capacity (estimated at 1.9 billion pounds/year). The delay in improvements to capacity utilization in this segment suggests continued challenges. Facilities in Millen and New Iberia are largely inactive, while some production is limited to fulfill specific industrial supply needs at the McIntyre plant.

Carbo's Strategic Shift to Broaden Focus Beyond CP

In light of the ongoing market complexities, Carbo Ceramics has openly acknowledged in its latest quarterly report that the recovery in oil prices has not significantly shifted the inclination of existing clients toward alternative completion methods, with many continuing to rely primarily on third-party raw frac sand rather than CP or RCS. This inclination appears poised to persist.

Moreover, the overcapacity in the CP sector coupled with a liquidation of imported inventories has adversely impacted Carbo's sales volume in Q1 of 2023, which saw a drastic drop of 35% domestically and 23% internationally compared to the previous year. Pricing for CPs also plummeted, with average selling prices dropping from $0.14 to $0.06 per pound.

In stark contrast, frac sand sales surged nearly 400%, reaching 370 million pounds in Q1 of this year. Carbo's idle frac sand plant in Marshfield witnessed a threefold increase in sales volume sequentially, and plans are underway to bring it back to full production capacity.

To navigate the challenges in the CP sector, Carbo's leadership has expressed a commitment to diversify operations away from traditional ceramic proppants. The focus is now on expanding into industries such as ceramic grinding media, mineral processing, and foundry markets where the company sees less cyclicality and greater potential stability.

Gary Kolstad, President & CEO of Carbo Ceramics, commented, "Our strategy aims to lessen dependency on base ceramic proppants as we anticipate the most challenging period of the industry cycle to be behind us. The absence of low-quality imports from China over the past two years coupled with below-cost pricing tactics by some competitors does not represent a sustainable business model." He reinforced a vision for growth in technology-driven products.

As the ceramic proppant landscape evolves, industry stakeholders must remain agile, leveraging insights and innovations to seize competitive advantages in both domestic and global markets.

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