Shale Boom Creates “Sand Millionaires”

Jul 18, 2012

The benefits from shale energy development extend beyond where the natural gas and oil are being extracted. Beyond Pennsylvania, Texas, and North Dakota, jobs are being created. A Youngstown, Ohio steel plant is making pipe for natural gas rigs. Chemical companies have more natural gas feedstock and can pass savings to other industries that use their products. Low-cost natural gas is causing transportation companies and heavy vehicle makers to seriously consider it as a fuel.

Then there’s sand.

Hydraulic fracturing, the method used to extract shale gas, entails pumping sand, water, and additives thousands of feet into the ground to crack (fracture) the surrounding shale to release the gas or oil.

These wells need sand, lots of sand. In 2011, 28.7 million tons of sand was used in hydraulic fracturing according to PropTester Inc. and Kelrik LLC. And they need a type of sand that can handle tremendous pressure. That type is found along the Minnesota-Wisconsin border. The Federal Reserve Bank of Minneapolis reports that this demand has created a sand boom in communities there:

Over the past five years, a sand rush has taken hold in west-central Wisconsin and southeastern Minnesota as mining companies seek out deposits of quartz sand suitable for “fracturing” shale rock to release oil and gas. Since 2007, over 40 frac sand mines have either opened or expanded their operations in Minnesota and Wisconsin, and over two dozen new mines have been proposed. The sand ends up at the bottom of wells in shale oil and gas fields throughout the country, including the Bakken oilfields in western North Dakota and eastern Montana.

This boom has created jobs. Each frac mine employs 10 to 20 workers, and each processing plants employs 40 to 50 people. These operations also require truck drivers to move the sand from the mine to the plant then to rail terminals.

Along with more jobs, the sand boom has increased local wealth which has blown across the area:

Last year, Windsor Permian, a Texas oil and gas firm, paid over $16,000 an acre—well above market value—for a potential mining site near Red Wing, Minn. In west-central Wisconsin, farmers have been offered six-figure mineral rights fees, plus royalties of $1.50 to $3 per ton for their frac sand, said Gerald Duffy, a Twin Cities attorney who has represented landowners in the area.

Spending by sand millionaires—along with purchases of goods and services by mining companies, mining-related businesses and their workers—percolates through local economies, benefiting enterprises with little connection to mining.

That spending allows Park Service & Convenience in Maiden Rock to stay open year-round rather than closing during the winter, when tourist traffic slows to a trickle. And in New Auburn, the patronage of mine workers is crucial for the Sunshine Café, a downtown diner. Business was poor before the plants came, said owner Cindy Sarauer, who bought the cafe a year ago; now mine workers coming off the night shift help fill tables at breakfast. “People are working, so they have money to come out and eat,” she said.

Local governments and taxpayers in rural areas also benefit from increased economic activity linked to mining. Chippewa Falls saw lodging tax receipts increase 23 percent between 2010 and 2011, in part because of overnight stays by mining company executives and their clients, according to city officials. And residents of the New Auburn area could see their school district mill rates drop by 40 percent or more over the next few years, as two new sand processing plants in the area start paying property taxes.

Bob Missling, an economic development official in Barron County, WI calls frac sand mining “the biggest and best thing that’s happened in our lifetime.”

The U.S. Chamber's Institute for 21st Century Energy is telling the public that "Shale Works for US." It not only creates jobs directly, but the beneficial effects are felt far across the country.

And to think, this is all due to George Mitchell who invested ten years and $6 million of his own time and money to make the combination of hydraulic fracturing and horizontal drilling technologies work to get shale gas out of the earth. That innovation is all his; we’re fortunate enough to be sharing in the benefits.

[H/T Mark Perry.]

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