Minn. companies eager to fill demand for frac sand despite uncertainty

The sandwich bags of silica sand displayed on Bill Bryan's desk represent a new direction for the company his father and grandfather started in 1941.

Limestone has been Bryan Rock Products' specialty, but three years ago Bryan learned that the silica sand underneath the company's limestone quarries in Shakopee is in high demand for hydraulic fracturing.

"When we drilled too deep, we'd knew we'd hit sand," said Bryan, the company's president. "We just didn't understand the market until a few years ago."

"It's a chance for us to expand. It would add quite a few jobs for us, and yeah, it's exciting," he said.

Adding frac sand as a product line would dramatically change Bryan's business. The company's sales are down by more than half since the housing boom in 2006 and 2007, and the quarry in Shakopee where the company wants to mine sand has been idle this winter because there's less need for the rock for projects like landscaping and driveways. The company has 30 employees now, but would add 70 with a frac sand operation, Bryan said.

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But the rush to mine frac sand in Wisconsin and Minnesota has slowed. The sand is still needed to pull natural gas from the earth through fracking, which is happening in other states, but demand for the sand isn't growing as fast as it was a couple of years ago.

Despite the trend, Bryan and several other Minnesota companies are moving ahead with their plans. Minnesota has at least eight frac sand mines, and several more companies have proposed new mines. That compares with Wisconsin, where about 100 mines are already permitted, according to the Wisconsin Center for Investigative Journalism.

One reason Bryan is confident about entering the frac sand market is because the proposed mine is located on a Union Pacific railroad line. The company's goal is to mine the sand, process it and load it onto rail cars all on site, and Bryan said the ability to do everything in one place will make the multi-million dollar investment worth it.

Many sand mines are forced to truck sand to other locations to be processed and loaded on trains or barges, which increases their costs.

"The market has softened in the last year or two, and we've seen prices come down," Bryan said. "We feel it's still a viable project, but you have to be a low-cost producer to maintain."

Frac sand mining industry analysts say transportation is an important question when evaluating whether a project can be viable.

"Companies like to mention: this is how we're going to get it from A to B, and it's a big thing for them," said Emma Hughes, deputy editor for Industrial Minerals, a London-based publication that analyzes the industrial minerals markets. "It's not something people necessarily think of first and foremost, but actually it's probably one of the biggest problems they have to overcome."

Bryan Rock isn't the only proposed Minnesota frac sand mine hoping to minimize the use of trucks to keep costs down. Great Plains Sand, also in Shakopee, plans to load sand into rail cars on site. In contrast, several proposed mines in southeastern Minnesota plan to truck it elsewhere for processing and loading onto trains or barges. Sand mines in Wisconsin are using both models.

How big of a problem transportation is depends on how much demand there is for the sand. When demand is high, prices go up, and companies can afford some extra transportation costs. That's why the frac sand industry closely watches natural gas prices, said Steven Ilkay, an oil and gas industry consultant.

"We're going to have to see a more sustained increase in natural gas pricing. We're bumping around $4 [per million btu], but that's a lot better than where we were at this time last year when we were at $2.75," he said.

Ilkay said he expects natural gas to reach $6 per million btu by 2015, which he said could dramatically boost the number of rigs extracting the gas. And they're going to need a lot of sand. Even with companies in Minnesota and other states lining up to fulfill that future demand for frac sand, Ilkay said not all of them will be able to get mines up and running.

"There's going to be a tremendous need," he said. "I look at the mine projections and they're huge, but the reality is now after I've seen this show for awhile, a lot of those mines won't get permitted. A lot of them if they get permitted won't get financed. When I look at future projections I don't believe it because those mines are just not coming online."

Ilkay said the industry is watching environmental regulations closely in both Wisconsin and Minnesota, because obstacles like temporary bans on mining could impact how much sand is available for fracking. In Minnesota, DFL lawmakers are considering a frac sand production tax as well as placing more environmental scrutiny on proposed mines.

They say the state needs to study the cumulative impacts of a sand mining boom and have money available to address any of the public costs that sand mining could bring. But the companies say the taxes could prevent Minnesota from helping meet the future demand for frac sand.

Scott Sustacek, CEO of Jordan Sands, a company that hopes to mine silica sand near Mankato, said the proposed taxes could impact how big of a player Minnesota becomes in the frac sand industry.

"It's going to cause companies to re-evaluate investment decisions; it's going to cause investors to look over to Wisconsin or even to Iowa, Nebraska. We have to see what happens here," he said.

(MPR reporter Stephanie Hemphill contributed to this report.)

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