Generic Manufacturing: The Buried Treasure Beneath the (Frac) Sand
Frac sand suppliers have struggled in the current market environment. Crude oil prices have crumbled amid a major oversupply (especially during the COVID19 pandemic). As a result, rig counts and frac spread counts have plummeted as new wells are not being drilled or completed. Consequently, there has been massive demand destruction for annual frac sand, to the order of tens of millions of US short tons. Even before the novel coronavirus, frac sand producers were fighting to stay competitive by offering more efficient logistics services to store and deliver sand products, since the majority of the sand price is comprised of its transport rather than the stand-alone product. However, with frac sand sales volume down so substantially and the overarching energy markets in peril, the topic of survivability and go-forward strategy is undoubtedly the elephant in the room.
As luck would have it, someplace “where X marks the spot”, beneath all of the stockpiles of frac sand lays a buried treasure; generic manufacturing. Frac sand plants host a plethora of options and tools that can be used to manufacture other products. One of the key tenets of both making money and preserving wealth is diversification, and a great avenue for frac sand producers to diversify could be to utilize their facilities to manufacture other types of goods such as powdered goods, polymers, composite materials, dyes and pigments, and more. For instance, if you visit the website of Carbo Ceramics (a notable player in the US frac sand industry), they recently listed generic manufacturing capabilities as part of their primary corporate value proposition. Some of the capabilities they listed for their sand plants that could be utilized by other industries include:
* Chemical Treatments
* Wet and Dry Blending and Mixing
* Particle Sizing
* Infusion and Coating
* Laboratory Services
* Kilns and Calcines
* Multiple plant locations
With frac sand facilities in the lower 48 well-positioned with access to Class 1 railroads, trainload facilities, product carrier networks and an openness to work with new business partners, it presents a great mutually beneficial partnership opportunity for businesses with proof of concept to build and scale manufacturing and logistics capabilities quickly and at low cost – provided they are willing to think outside the box.