Forecast for frac sand demand
Emerge Energy Services (EMES), in a recent presentation, provided Wall Street analysts’ estimates for frac sand demand. Analysts expect the frac sand demand in 2017 and 2018 to be higher than historical peaks. The demand growth is expected to be driven by an increase in rig count and increases in drilling efficiencies. More wells drilled per rig and higher sand intensity per well increases drilling efficiency.
The above chart shows the growth in demand for frac sand and the forecast for the next two years. As the chart shows, the 2017 expected demand is much higher compared to prior years. The demand is expected to grow at a 62% CAGR (compound annual growth rate) over two years.
The consensus estimates put expected demand in 2017 at 77 million tons, up from 39 million tons in 2016. Jefferies estimate of demand in 2017 is highest at 81 million tons.
For the projected frac sand demand in 2018, the consensus estimate is 102 million tons. While TPH estimates the demand in 2018 at 121 million tons, Jefferies expects it to be just 90 million tons. As the chart shows, the demand level is expected to remain much higher than prior years, even with the most conservative estimates.
In the next part of this series, we’ll discuss what institutional investors are doing with their Hi-Crush Partners (HCLP) and Emerge Energy Services holdings.