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Wild price fluctuations. Technology breakthroughs. Regulatory issues. Environmental controversies. Rarely is there a dull moment in the oil and gas business. And now there’s hydraulic fracturing—not a brand new innovation, but still one of the most game-changing extraction approaches in a long time.
North America’s response to this new method has been huge and interest in other parts of the world is rising almost as rapidly. For many companies, it’s a whole new world, with field operators, services providers and material suppliers all learning as they go. And for those businesses that learn the fastest—and apply their new insights in savvy and productive ways—the opportunities are boundless.
By unlocking previously inaccessible hydrocarbons, hydraulic fracturing (fracking) can greatly increase yields from shale formations with low permeability and porosity. High-pressure water and proppant—along with small amounts of specialty chemicals and acid—are pumped into the ground to break open the rock and allow hydrocarbons to flow out through the wellhead. Proppant plays a critical role in the process by keeping fractures “propped open” once pumping is complete and pressure reduced.
Commercial grade silica is the most common and economical form of proppant. Oil and gas companies now use a significant percentage of all the proppant consumed in the United States. Commercial silica may not be as effective as costlier resin-coated silica and ceramic proppants. Resin-coated silica can reduce proppant flow-back by trapping fine grains that have been crushed under pressure. And ceramic proppants (manufactured from kaolin and sintered bauxite) do a better job of maintaining a uniform shape and size under high pressure (important for maintaining hydrocarbon flow paths in some formations and well designs).
However, traditional silica-based proppant is significantly less expensive and most companies consider this to be the determining factor.
Oil and gas extraction is certainly not new. Nor is the gathering and transport of silica. What is new is the epic expansion of volumes and destinations. This is what makes proppant supply chain management a largely new ballgame. Accenture has identified eight leading practices which, when implemented individually or in concert, can help field operators, services providers and material suppliers deal more cost effectively with their proppant supply chain challenges.
Understand total cost of operations analytics— along with improved-data capture mechanisms and standardized presentation formats can help operators, services providers and material suppliers integrate field forecasting into supply/demand discussions on a real time and systematic basis.
Use simulation to gauge the cost implications of changing conditions.
Develop a mobility strategy.
Use analytics to hone sourcing and purchasing decisions.
Explore unconventional collaborations to improve flexibility.
Avoid capital investments that limit agility.
Tighten links with key customers.
Approach proppant supply chain management more strategically.
The proppant market has grown so fast that most field operators, services providers and material suppliers are struggling to keep up. Managing the proppant supply chain may be the biggest challenge of all. The typical proppant supply chain is hundreds, if not thousands, of miles long and involves myriad players and modes.
The challenge is largely geographic: Most domestic silica mining happens in the Great Lakes region but smaller operations exist in Texas, Arkansas, Oklahoma, Arizona and other spots. Hydraulic fracturing operations are located from North Dakota to Louisiana and Pennsylvania to Wyoming. Given these widely disbursed operations, it shouldn’t be surprising that transportation represents more than 60 percent of proppant’s overall cost.
Distribution issues also are significant. Transload facilities must be available to store proppant and transfer it from rail cars to trucks for shipment to well sites. Significant storage costs are incurred when proppant is held at a transload facility or in railcars.
Proppant supply chain management also is complicated by a rapidly changing business mix. In recent years, the amount needed for one unconventional (shale fracturing) well has grown from 150 tons to nearly 2,500 tons.
Finally, oil and natural gas prices are particularly volatile, complicating long-term supply chain planning. Consider the interaction between oil and gas prices: When gas prices are low, producers are more inclined to develop oil wells, which in turn alters the demand for various forms of proppant. Environmental regulations also vary from state to state.
There is no single recipe for developing the perfect proppant supply chain. Yet there are a variety of leading practices with high levels of applicability to virtually all companies in the hydraulic fracturing business. In fact, some organizations have already implemented a number of these practices and made significant operational strides as a result.
Of course, not every leading practice applies to every company, nor is it necessary (or feasible) to pursue every one. But by embracing as many of the practices’ underlying tenets as possible (developing integrated strategies; emphasizing total cost of ownership; leveraging analytics, simulation and mobile technologies), field operators, services providers and material suppliers will likely find new economies, leverage points and opportunities to achieve high performance.
December 11, 2012
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