Sand, Fracking, and iPhones = New Commodity Futures Market?

Sand PortraitPicture Courtesy: WISH

Yes, that is in fact 8 Million pounds of rock, sand, and soil to create the largest land art portrait, in Belfast, Ireland. We can’t tell if it’s a work of art or a little bit creepy (like it’s looking into your soul), we’ll let you decide. Besides this work of art there has to be another use for 8 million pounds of sand, right? If fact, that’s the exact amount of sand needed in order to frack one well, 8 Million pounds. Huh… using a commodity to mine other commodities… Who knew the futures markets could be so meta.

We’re not one to get in a political battle weighing the economic benefits and environmental drawbacks, but with more and more states legalizing Fracking (Illinois, California), us managed futures folk are asking ourselves what does the sand market look like? Not so bad, says the Wall Street Journal, explaining the use of sand is up 25% since 2011.

“Energy companies are expected to use 56.3 billion pounds of sand this year, blasting it down oil and natural gas wells to help crack rocks and allow fuel to flow out.

“During the first nine months of this year, the more than $245 million in sand sold to energy companies accounted for 62% of U.S. Silica’s sales, up from 53% during the same period in 2012 and 33% during the first nine months of 2011.”

U.S. Silica used to use majority of their sand to make glassware, and the screens for iPhones and iPads. Now more than half of Silica’s sand goes towards fracking, and with the United States having the resources to frack, it doesn’t seem like things are slowing down.

US Fracking MapMap Courtesy: EIA

“In Wisconsin, the source of white sand perfectly suited for hydraulic fracturing, state officials now estimate more than 100 sand mines, loading, and processing facilities have received permits, up from just five sand mines and five processing plants operating in 2010.

Canadian National Railway Co. is spending $68 million over three years to upgrade and restore more than 100 miles of track in Wisconsin so it can boost sand shipments out of state.”

Again, us managed futures folk are asking ourselves with this kind of production, and an increase on the horizon, why not have a futures market for sand?

Think about it… in order to Frack one well, successfully, it requires 4 million pounds…. But some companies have started doubling the amount of sand used (8 Million), to potentially add around $600,000 in value from each frack. Last year, the price range of sand was in between $50 and $75 per metric ton. Say each company uses 8 million pounds of sand, convert that to metric tons (8,000,000 * .004535 =  3,628), multiply that by spot price (3,628 * $75= 272,100) per Frack. What do you think CME, ICE, or anyone? One sand  futures contract  could be equivalent of 8,000 lbs. of sand?

You’re probably thinking, what happens if Fracking eventually dies, because water from people’s kitchen sinks light on fire, or the increase in earthquakes could prove to be more hazardous than the benefits of cheaper energy commodities.

We think Sand being used to make cell phone screens along with pretty much all glass in the world today, might offer some bit of security for the demand in the market.

P.S. – for more on fracking impact on the Nat Gas futures market, see this chart, from a Wall Street Journal article here.

Nat Gas Fracking PostChart Courtesy: Wall Street Journal

P.P.S. — We’re not just thinking about a new commodity futures market, we’re also pondering a Bitcoin futures market.

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