Demand for Sand Takes Off Thanks to Fracking

Companies Race to Build New Mines as Prices Rise.

A sand mine in Garnavillo, Iowa.

Sand prices are rising and companies are racing to build new mines in South Dakota and other locations as demand intensifies for the silica crystals that energy companies use to frack oil and gas wells.

Sand is a key ingredient in items from solar panels to smartphones, but in recent years billions of pounds of it have been poured down wells to help coax more fuel out of the ground. In hydraulic fracturing, sand is mixed in a slurry of water and chemicals, then pumped down a hole to crack open dense rocks so oil and gas can escape to the surface.

Frackers are expected to use nearly 95 billion pounds of sand this year, up nearly 30% from 2013 and up 50% from forecasts made by energy-consulting firm PacWest Consulting Partners a year ago.

It can take four million pounds of sand to frack a single well, but several companies are experimenting with using more. Companies like Pioneer Natural Resources Inc., which recently received a ruling from the U.S. Commerce Department allowing it to export unrefined ultralight oil produced from shale formations, are finding that the output of wells is up to 30% higher when they’re blasted with more sand. About a fifth of onshore wells are now being fracked with extra sand, but the technique could expand to 80% of all shale wells, according to energy analysts at RBC Capital Markets.

U.S. Silica Holdings Inc., one of the largest industrial-sand companies, has already raised prices for some frack sand, and it said recently that it would also start charging 10% to 20% more for the finer grades of sand typically used to make glass and various industrial products as it diverts some of this supply to oil producers. The best sand is dubbed Northern White because the round crystal, which can withstand serious heat and pressure underground, is found in states like Wisconsin and Minnesota. The company expects demand for sand will be at least 25% higher than supply for the rest of this year.

“There’s really no limit on the demand side,” she said.

But there are growing restraints on sand supplies. By the end of this year, new and expanded mines capable of producing 10 million pounds of sand annually will be up and running, but future projects could face delays, Cowen & Co. analyst Marc Bianchi said.

Dozens of new sand-mine permits were issued over the last three to four years in places like Wisconsin, Minnesota and Illinois, triggering a massive public backlash about the truck traffic, dust and breathing problems these operations can create. Now many state and county-level health officials are trying to slow the sector’s expansion.

A few companies are skirting those efforts by teaming up with towns hungry for jobs and tax dollars, as well as more regulatory control. In Wisconsin, the cities of Independence and White Hall last year annexed land in Trempealeau County so that Hi-Crush could move ahead with its new mine.

More From The Wall Street Journal (subscription required):