THE OIL PRICE COLLAPSE
DOMINO EFFECT: PRICE BUBBLE FOR DRILLING SAND IS ABOUT TO BURST
January 13, 2015
The booming drilling sand industry could be facing a
slowdown as explorers and producers cut back on spending to combat weak oil
prices, a new report by Moody’s said.
Moody’s said Tuesday that upstreams are likely to cut
capital expenditures by 30 to 40 percent if oil fails to trade above $60 per
barrel.
With crude falling by over 55 percent since July
proppant producers are concerned that a drop off in investments could severely
reduce demand for sand.
Drilling sand, or proppant, is often made with sand or
man-made ceramic material and is used to hold fissures open during the
hydraulic fracturing process.
Upstreams could either shelve new drilling plans all
together or push for lower proppant prices to cut costs.
According to Houston-based services player Baker Hughes,
the number of active drill rigs in the United States fell to 1,750 last week
from 1,900 in November.
Moody’s said newer proppant intensive wells that use up
to six times as much sand could help offset losses tied to curbed drilling
activity.
“If you think about demand, you have a baseline demand
from drilling and then demand from proppant intensity. It’s still too early for
us to determine how much demand is being driven by added sand per well,”
Moody’s analyst Karen Nickerson told Fuel Fix.