A higher demand for frack sand is expected to push up the overall demand for proppant by 23% annually through 2016 as oil and gas companies ramp up horizontal frack stages in shale plays across North America.

The report, released by the PacWest Consulting Partners market intelligence firm, also revealed that sand demand could grow by 24% annually while the resin-coated sand and ceramics proppant markets could see an annual growth of 9% and 2%, respectively.

The upbeat forecast comes as the North American shale boom continues producing record amounts of oil and gas, while helping to stabilize global energy prices as other parts of the world endure geopolitical angst.

“The proppant demand forecast closely mirrors the activity forecast. … We are showing robust growth in horizontal frack stages,which is driving a higher proppant market forecast,” Samir Nangia, principal with PacWest Consulting Partners, said Oct. 9 during a conference call. He pointed out that just a few plays account for most of the growth, namely the Marcellus, Permian, Eagle Ford, Montney and Duvernay. However, “There is also another takeaway here. We have not factored in a very large increase in proppant intensity, which means proppant consumed per well, so most of our estimates are driven by an increase in activity.”

On average, between 5 MMlbs and 6 MMlbs of frack sand is being used per well, Nangia said. However, the top five operators in North American shale plays are using nearly double this amount, consuming 9.7 MMlbs of frack sand per well.

“This trend toward more proppant and more sand is becoming an accepted best practice as opposed to just being an outlier,” he said, adding that if all of the players started using as much sand as EOG and the other top operators, total consumption could double.

The good news is that there is enough sand. Although lower than the demand increase, PacWest called the supply response “robust” with an anticipated 18% growth in capacity per annum. The firm also expects moderate price increases of about 3% mainly “due to stronger increases in demand growth than in supply growth.”

But a change in frack design is putting a bit more pressure on sand providers to offer certain types of sand by play.

“In nature you only get so much coarse capacity, and indeed that is the true bottleneck. That is the reason why we find new mines being constructed despite the fact that the installed base of supply is much higher than demand,” Nangia explained. “For every 100 tons of capacity that you bring online in Wisconsin, only 20 to 40 tons out of that gives you the coarse capacity, which is the 20/40 and the 30/50 mesh sizes.”

Prices for coarse sand have also increased significantly and are between $10 and $20 more per ton than finer grades.

But operators producing oil in some plays are opting for 100 mesh, driving up the demand for this fine sand. Some of the new mines focused on 100 mesh are being built in Arkansas and Missouri.

“The top four plays account for greater than 60% of total frack sand consumed. The Eagle Ford accounts for more than 25% of the total. The Permian is big, and it is getting bigger and one day might exceed the Eagle Ford. But as of now, it is smaller,” Nangia continued. “Most of the plays consuming proppants today are plays focused on oil and liquids,” with the natural gas-focused Marcellus being the exception.

The future could also hold regulatory concerns involving the amount of time it takes to permit a new frack sand facility and zoning ordinances for mines as well as more logistical issues.

In addition to a shortage of railcars needed to transport frack sand, there is also a shortage of dedicated tractor trailers to carry sand from the railcars to the frack sites, according to Nangia, who stressed the significance of the issue by stating that 90% of all frack sand probably travels by rail for part of its journey.

“All of the plays are short of transloading capacity. The Eagle Ford, DJ [Denver-Julesburg] Basin, Bakken and Montney are most at risk for supply interruptions. If there are any types of interruptions with the railway systems that result in delays greater than 15 days, it will interrupt work in all of these plays,” he said. “The railway, just like the airlines, depends on a hub-and-spoke system. The system works extremely well for the most part, but when there are bottlenecks it also takes a longer time to unwind those bottlenecks.”

Adding to pressure on railways this year are the bumper agricultural harvest, low coal inventories, and increased crude by rail, chemicals and lumber shipments. “All of these things are correlated to the economy, and the economy has been doing a little bit better. As a result there is a lot more traffic on the rail system,” he said.

PacWest said it expects logistical challenges to linger through 2016, resulting in price increases at the well pad.

Efforts to increase production have already lifted sand providers like U.S. Silica Holdings, which expects its demand to triple over the next five years mainly because more sand is being used during the fracking process. In September, the company announced plans to add about 3.8 million tons of new capacity by expanding its Pacific, Mo., plant in response to the oil and gas industry’s increased use of fine-grade products, specifically growing northern white frack sand.

The $33 million project at the plant, which has access to the Union Pacific and BNSF railroads along with barge access, is due to come online in third-quarter 2015, the company said.

U.S. Silica is also developing a new 3-million-ton-per-year frack sand mine and plant in Wisconsin. The $150 million project is expected online by mid-2016.

“Based on conversations with our customers, we believe that a step change is occurring with regard to the volumes of sand being used per well, which translates into significant demand for our products,” U.S. Silica Holdings CEO Bryan Shinn said in a prepared statement. “These new capacity expansions will enable us to keep pace with the market and ensure that our customers have ample products to satisfy their needs.”

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