A Massive Paradigm Shift In Frac Sand’s Last Mile Is Happening Now

Retail giant Amazon and the hydraulic fracturing business have something in common: costly and complex last mile logistics. Distributing proppant requires just as much sophistication as distributing Echo Dots, Yeti Tumblers, and Kleenex.

In 2017, more truckloads of sand per well will be pumped than ever before.

The frac industry is trying to suck a growing proppant milkshake through a shrinking number of straws. In-basin transportation has become an Herculean task.

This huge challenge is creating big opportunities – it is an exciting time for frac sand’s last mile. The business is evolving very fast, consensus on the best approach has yet to emerge, and new entrants are challenging the status quo with new solutions.

In this edition of Out Think (our in-depth report series), we explore some of the hottest issues in the last mile for frac sand, introducing the latest solutions and strategies for dealing with one of the industry’s biggest challenges today.

Here is a skinny version of the executive summary (please sign up to read the full report):

  • Competitive dynamics are changing faster in frac sand’s vital last mile logistics system than in any other oilfield segment today. The entire completions value chain is exposed.
  • This year, cyclical forces will catch up to a multi-year structural evolution in demand, catapulting the last mile into the spotlight (or heat lamp as it were).
    • Structural Shifts. High intensity well designs have become the norm as completion designs incorporate ever growing proppant loadings across longer laterals. This year, the average US well is expected to consume 4x the 2013 average sand volume, with outliers taking up to 8x. This is complicating staging at the well-site and sending a disruptive ripple back up the last mile delivery system back through trans-load.
    • Cyclical Forces. As the frac industry rebounds, 2017 US sand demand is expected to double from 2016 levels. The trucking fleet is not ready.
    • We have started hearing about demurrage charges (at a rate of $100/truck/hour) again this month for the first time since 2015.
  • The collapse of total US sand demand during the downturn allowed last mile choke-points to fester unnoticed by many. Now they are coming to a head and this year everyone will notice.
  • The last mile is a canary in a coal mine for the frac sand business. In-basin logistics will show the stress of frac sand demand evolution well before rail availability and mine capacity are tested again.
  • The demand-side disruption creates new opportunities.  Dozens of companies (many of them small privates some backed by private equity funding or sponsorships from big industry names) are now experimenting with rapidly evolving solutions. We introduce some market leaders and their technologies in this report.
  • Containerized solutions have gained traction quickly and pending OSHA regulations effective June 2018 will be a catalyst for the adoption of new well-site delivery and storage mechanisms.
  • We believe a combination of rising last mile logistical complexity and the emergence of new companies with more efficient solutions will accelerate outsourcing of the last mile.
  • Today, there is no consensus strategy for dealing with the last mile – that’s what makes it so dynamic. Every company involved is putting a different level of skin in the game, and the industry has yet to settle on the optimal strategy.
  • As far as new solutions, the market remains fragmented with no clear winners yet in the market share consolidation race, although some contenders are touting impressive adoption rates. Multiple future market leaders are likely still in early stage development, and we may see more IPOs / spin-offs in this space over the next 12-24 months.

There’s a lot more to this story…

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