Volatility and prices surrounding a product produced mainly in India and essential to the hydraulic fracturing process are expected to stabilize by early 2013.
The trend for guar gum, used in a crosslink gel during the fracing process, was delivered by the PacWest consultancy as part of a webinar Dec. 12 about the hydraulic fracturing market. Christopher Robart , a principal with PacWest, said guar is likely to stabilize around US $3 to $4 per pound.
This predicted price is a steep drop from prices that rose as high as $11/lb after a short 2011 monsoon season coupled with rising North American demand as drilling activity in shale plays increased. The situation in India started a search for guar gum as prices there and in the US escalated. It eventually led some to turn to guar gum substitutes and stockpile available supplies as farmers worked to increase guar harvest sizes.
“But we don’t expect to see the same pricing that occurred last year around this time,” Robart said. “We expect the volatility to significantly decrease from what it has been for the last 12 to 18 months, which will definitely mitigate some of the pressure on the margins.”
Part of the reasoning behind the forecast is that there are a lot of guar substitutes in the market, which will likely to create a guar price ceiling of about $4 to $5/lb, according to PacWest.
“Every pressure pumper who has research and development capabilities has been doing some research into guar substitutes,” said Robart, whose presentation pointed out that service companies such as Schlumberger and Halliburton increased R&D spending on guar substitutes when prices skyrocketed. “We have seen, in our database, consumption of those substitutes increase. However, their costs are relatively high – on average roughly in the $8,000 to $10,000/metric ton range. We see that essentially as putting a ceiling on the price of guar.”
As the price of guar increases, companies shift to economical substitutes, which in turn begin to limit the demand for guar, creating a balance to help moderate guar price volatility, Robart said.
Also, PacWest believes that the North American market frac activity will level out during the next one to three years, creating a small to moderate guar demand for the market. Moreover, North American oilfield activity has decreased in the past three to six months because of oil price concerns and drilling and completion