Volume 47, Issue 3 - March 2012

feature

Fractured Fairy Tale
How Hydraulic Fracking Could Lead to Higher Glass Prices
by Sahely Mukerji

What does fracking, the controversial process of oil and gas production, have to do with the price you’ll be paying for glass next year? Quite a lot it turns out.

Fracking is the process through which non-potable water and sand are injected into shale rock through fractures to release oil and natural gas trapped inside. It has been blamed for causing contaminated water and even earthquakes. After the fractures are made, the oil, gas and water are harvested through a steel pipe cemented in the ground to the surface above.

But it’s not the contamination in water or the earthquakes that has the glass industry worried. “There's tremendous amount of this activity [fracking] going on, and this industry uses the same sand that we use to make glass,” says Todd Huffman, vice president of operations at Pilkington BPNA in Toledo, Ohio.

As a result, there is a risk of an industrial sand shortage due to the natural gas and oil boom, says Pat Watson, president of Cardinal Corp.’s float glass division in Portage, Wis. “Sand manufacturers over the years have always sold to glass and fracking businesses, and typically, the glass sand is a lower priced product,” he says. “As a matter of fact, in some mines, glass sand was actually a byproduct of the frack-sand production business, so selling this sand to the glass business not only enabled them to get rid of the byproduct but they were able to be profitable doing it.”

What has changed in the past couple of years, however, is the drilling technology for oil and gas wells; more specifically horizontal drilling, Watson says. “Old wells that had a straight shaft only are now being drilled horizontally, which has basically reopened gas and oil reserves that had been abandoned,” he says. “Some of these wells will be drilled horizontally in several directions, which uses a lot of sand in the process. This has caused the boom, and drilling, thus fracking, has increased dramatically in the United States. Some of these wells are being fracked with sand that could typically be used for glass sand, so obviously, it could affect the glass business.”

Here’s how: “This really started to impact the price of sand about one to two years ago and the price of sand has gone up four to five times in the last two to three years,” Huffman says. “For glass we're more concerned with the chemical makeup of the sand and the natural gas industry is more concerned with the shape of the beads. In addition to the quarries, the transportation instrument is the same for both industries. The rail/trucks are the same,” he says.

A History of Fracking, Changes in Technology
The technology of hydraulic fracturing has been in use since the 1940s, when liquids such as gasoline and crude oil were injected into poorly performing gas and oil wells in the central and southern United States with the aim of increasing their flow rate, according to the Encyclopedia Britannica website. “Over the following decades, techniques were improved—for instance, treated water became the preferred fracturing medium, and finely graded sand or synthetic materials were adopted as a ‘proppant’ to hold open the fractures,” according to the website. “However, fracking did not enter its current modern phase until the 1990s, when the use of new steerable drill bit motors and electronic telemetering equipment allowed operators to direct borehole drilling and monitor the fracturing process with great precision.”

Shortly after, the high price of crude oil and environmental regulations that discouraged the burning of oil and coal created a market favorable for natural gas. In response, developers began to open up so-called unconventional gas reservoirs—rock formations that previously had been left undeveloped because, under older production methods, they released the gas contained in them too slowly or in too small a quantity to be profitable, the website states.

According to the American Petroleum Institute website, application of hydraulic fracturing techniques to increase oil and gas recovery is estimated to account for 30 percent of U.S. recoverable oil and gas reserves, and has been responsible for the addition of more than 7 billion barrels of oil and 600 trillion cubic feet of natural gas to meet the nation’s energy needs.

The hydraulic fracturing industry used to perform fracturing in vertical wells which required coarse sands to extract both oil and gas, says one spokesperson of a mining corporation, who wished not to be identified in print. “The development of horizontal fracturing has increased the need for sand, because they use more sand per well and the same distribution that is used for other applications such as foundry and glass.

“The hydraulic fracturing market will also pay a higher price for the sand. So, from the sand supplier’s view, it is making virtually the same product, but selling it for a much higher price to be used in fracking. Thus the sand market has changed significantly, with a high demand for frack-sand significantly affecting the market for all sands. More and more companies are attempting to get into the sand business especially in western Wisconsin and Minnesota where the quality of the sand makes it desirable for hydraulic fracturing,” adds the spokesperson.

The current “boom” areas for fracking are North Dakota (Baaken shale) southwest Texas, (Eagleford Shale), New York, and Pennsylvania (Marcellus Shale), the mining spokesperson says.
Some companies, such as U.S. Silica, have boomed based partially on fracking profits. The company, a producer of silica used in fracking as well as solar panels, recently raised $200 million in its initial public offering. U.S. Silica originated in West Virginia as a supplier of raw material for glass used in the manufacturing sector in Pittsburgh, before moving to Frederick, Md.

“There is one thing I believe the sand producers realize: the glass customers they service have been long-term, steady customers ... So the hope is the pricing in the glass business will not see the upward pressure the well-fracking business will.”
—Pat Watson, president of Cardinal
Corp.’s float glass division

“The market [for fracking sand] is in extremely short supply right now,” says Bryan Shinn, U.S. Silica’s chief executive, in a MarketWatch article. “The U.S. shale revolution is here to stay. We’re in the early innings right now.”

“Though there is a boom in the fracking business, this business is usually cyclical and it will slow down,” says Watson. “Supply and demand is part of the process, and there certainly will be upward pressure on pricing. There is one thing I believe the sand producers realize: the glass customers they service have been long-term, steady customers, which is good for business. So the hope is the pricing in the glass business will not see the upward pressure the well-fracking business will see.”

Earnest Thompson, director of corporate marketing and brand management at Guardian Industries in Auburn Hills, Mich., agrees. “Guardian is fortunate to work with long-term sand suppliers with whom we have long-term agreements in place,” he says. “They recognize that the float glass industry has been—and will be—around for awhile. Our global presence is also a real asset with some of these suppliers.”

“The price of natural gas has fallen, so, some think the price of sand will go down, but I think it will still go up, but not at the current rate,” says Huffman. “Anybody using silica sand—for instance, fiberglass manufacturers and bottle manufacturers—are impacted by it. Our cost is going up and at some point we'll have to pass that down. However, it hasn't happened yet.”

Sahely Mukerji is the news editor for USGlass. She can be reached at smukerji@glass.com.

 

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