Guar gum prices appear to have stabilized as expected amid ample supplies, according to an analyst from PacWest Consulting Partners.

Prices have been flat or just below the approximately US $3/lb to $4/lb predicted in late 2012, said Christopher Robart, a principal with PacWest. The cost is significantly lower than the high of around $11/lb experienced after a short 2011 monsoon season and drilling activity in North America prompted a shortage of the crosslink gel used during the hydraulic fracturing process.

At that time, some pressure pumpers switched to guar gum substitute, which Robart said is now running at about $6/lb.

“Our estimates are about 10% of all gelling agents are a product other than guar gum. My guess is [guar substitute use] has come down over the last six months,” Robart said. “The prices, being what they are now, [means] most of these substitutes aren’t economic. They are all slightly higher priced. The performance is not as strong as guar gum, and they are a little trickier to use.”

Whether the need for guar gum will increase in the long term as countries across the world try to tap shale resources remains to be seen. That will depend on whether hydrocarbons targeted are oil or gas. Considering slickwater fracturing is mostly used during gas production, the need for guar gum could take an upturn if production from shale oil plays increase, possibly impacting prices.

A lot of the international activity will be focused on gas, Robart added, noting some gas plays use a little bit of guar, but for the most part slickwater-based fracturing is used.

However, if other countries are able to follow in North America’s footsteps, joining the shale revolution, development of liquids-rich plays could come as well.

“If we’re talking about people focusing on shale oil for instance in Russia where you have the Bazhenov shale, which is in the early stage of operation, it could be something big,” Robart said of the potential future impact on the guar gum market. “But it is yet to be determined. My guess is that that would include a significant amount of gelling agents on a well-by-well basis, and therefore that could absolutely have a huge impact on the demand for guar.”

Rosneft has already formed relationships, including one with ExxonMobil, centering on the formation. In December 2012 Rosneft said the two companies signed an agreement to assess possible commercial production of tight oil reserves at the Bazhenov and Achimov formations. The program will involve “drilling new horizontal and vertical wells using the latest fracturing technologies, deepening existing wells, and redevelopment of idle wells,” according to a news release.

Similar partnerships have formed in other countries, including China, as efforts to tap shale plays gain momentum.

West Siberia’s Bazhenov is among the largest shale oil fields in the world, covering about 2.3 million sq km (888,030 sq miles). Rosneft’s acreage is believed to hold estimated reserves of 18 Bbbl.

The US Lower 48 has an estimated 24 Bbbl of technically recoverable shale oil in discovered plays onshore, according to the US Energy Information Administration, which cited INTEK Inc. figures from 2009.

The surge in production from US shale plays was partly to blame for the guar gum shortage experienced in 2011 when prices skyrocketed.

Although India supplies the majority of the world’s guar gum supplies, farmers in other countries are growing or are contemplating growing the crop. Others with supplies include Australia, Pakistan, and some countries in south and east Africa, Robart said, noting that he spoke with some people in South America who also are experimenting with growing guar.

“At this point, I don’t see the supply landscape changing significantly,” he said. “For the near to medium term I don’t see India being unseated as the global producer of guar gum.”

Currently, prices remain stable, but Indian news agencies recently reported that lifting the ban in India on futures trading for guar gum could increase prices. Measures have been put in place by the commodity markets regulator to prevent price rigging, The Hindu Business Line reported.

“The oil company’s stocks will not last beyond the current marketing year, necessitating procurement of fresh supplies if their operations are to continue. Farmers in India, too, have refrained from selling their stocks in the open market for some time, having received word that futures trading was likely to get the green signal again,” the article said.

“If they are able to maintain their resolve and resist the temptation to dump stocks, prices will inexorably rise. To that extent, the controls imposed by the [Forward Markets Commission] on guar gum trading do not predicate a rise in prices in international markets, in which case prices in the futures market at home will also rise appreciably.”

Guar gum traded at US $505.39 (Rs 28,150) May 14 after hitting a high of $551.17 (Rs 30,700) for June delivery, while the average traded price for guar gum seed was $172.01 (Rs 9,581), Times of India reported. Resumption of trading has given farmers hope of landing better prices for their crops, but caution remains given the price surge that eventually plummeted.

Contact the author, Velda Addison, at vaddison@hartenergy.com.