Guar bean is so hard it can crack human teeth--a quality that makes it ideal for fracturing shale rock to extract oil and gas. Guar was eaten by the poorest of the poor or fed to animals in India and Pakistan before the shale oil and gas boom in North America dramatically increased its demand and pushed its price higher.
"Shortages of guar beans, an essential component in the shale gas fracking process, have resulted in huge price hikes for the commodity in 2012, said risk consultancy Maplecroft in a recent report. This has hit the profits of oil and gas companies hard and a search is under way to find supply chain alternatives, such as direct farm contracts and man-made substances.
India's National Commodity and Derivatives Exchange (NCDEX) banned trading of guar futures in March this year after prices rallied nine-fold to a record US$1,680 per 100 kilograms, according to Bloomberg data. Over 95% of the world's supply of drought-resistant guar comes from the desert regions of South Asia. India produces 80% and Pakistan 15% of the world's supply. The rest comes from Sudan and the United States.
Higher prices are inducing farmers in India and Pakistan to plant more guar. Despite the expanding supply, however, many analysts believe that guar prices will remain high for the foreseeable future. Neil Beveridge, an oil analyst at Sanford C. Bernstein & Company, told New York Times that demand for fracking services should continue to grow rapidly as the industry expanded outside North America.
Both India and Pakistan are planning to develop their substantial reserves of shale oil and gas. India has 63 trillion cubic feet of shale gas and Pakistan has 51 trillion cubic feet, according to US Energy Information Administration (EIA).
Trican Wells Services of Calgary told Edmonton Journal that its bottomline would be directly hit by the elusive and expensive bean. Average guar costs increased sequentially in the second quarter and we were largely unable to pass these costs on to our customers due to the competitive pricing environment, the company said, explaining its larger-than-expected estimated loss of $24-million to $34-million.
Fracking companies are already looking for guar substitutes. Trican, for example, is looking to introduce a new hybrid fluid system that will reduce its guar usage. We have started to see a reduction in guar prices and we expect guar prices to continue to decrease throughout the remainder of 2012 as a result of the development of hybrid systems and guar substitutes, and the new guar crop that is expected to increase supply later in 2012.
Rising demand and increasing prices of guar are already helping lift many Indian farmers out of poverty. A New York Times story highlights the life changes of an Indian farmer "Sohan Singhs shoeless children" who "have spent most of their lives hungry, dirty and hot. A farmer in a desert land, Mr. Singh could not afford anything better than a mud hut and a barely adequate diet for his family". The Times quotes Singh as saying, Now we have enough food, and we have a house made of stone,
The shale revolution now sweeping North America is helping change the fortunes of many poor farmers in South Asia. Bringing about the shale energy boom in India and Pakistan can overcome energy shortages and help millions more improve their lives.
Haq's Musings: American Shale Fracking Fuels Demand for South Asian Guar
"Shortages of guar beans, an essential component in the shale gas fracking process, have resulted in huge price hikes for the commodity in 2012, said risk consultancy Maplecroft in a recent report. This has hit the profits of oil and gas companies hard and a search is under way to find supply chain alternatives, such as direct farm contracts and man-made substances.
India's National Commodity and Derivatives Exchange (NCDEX) banned trading of guar futures in March this year after prices rallied nine-fold to a record US$1,680 per 100 kilograms, according to Bloomberg data. Over 95% of the world's supply of drought-resistant guar comes from the desert regions of South Asia. India produces 80% and Pakistan 15% of the world's supply. The rest comes from Sudan and the United States.
Higher prices are inducing farmers in India and Pakistan to plant more guar. Despite the expanding supply, however, many analysts believe that guar prices will remain high for the foreseeable future. Neil Beveridge, an oil analyst at Sanford C. Bernstein & Company, told New York Times that demand for fracking services should continue to grow rapidly as the industry expanded outside North America.
Both India and Pakistan are planning to develop their substantial reserves of shale oil and gas. India has 63 trillion cubic feet of shale gas and Pakistan has 51 trillion cubic feet, according to US Energy Information Administration (EIA).
Trican Wells Services of Calgary told Edmonton Journal that its bottomline would be directly hit by the elusive and expensive bean. Average guar costs increased sequentially in the second quarter and we were largely unable to pass these costs on to our customers due to the competitive pricing environment, the company said, explaining its larger-than-expected estimated loss of $24-million to $34-million.
Fracking companies are already looking for guar substitutes. Trican, for example, is looking to introduce a new hybrid fluid system that will reduce its guar usage. We have started to see a reduction in guar prices and we expect guar prices to continue to decrease throughout the remainder of 2012 as a result of the development of hybrid systems and guar substitutes, and the new guar crop that is expected to increase supply later in 2012.
Rising demand and increasing prices of guar are already helping lift many Indian farmers out of poverty. A New York Times story highlights the life changes of an Indian farmer "Sohan Singhs shoeless children" who "have spent most of their lives hungry, dirty and hot. A farmer in a desert land, Mr. Singh could not afford anything better than a mud hut and a barely adequate diet for his family". The Times quotes Singh as saying, Now we have enough food, and we have a house made of stone,
The shale revolution now sweeping North America is helping change the fortunes of many poor farmers in South Asia. Bringing about the shale energy boom in India and Pakistan can overcome energy shortages and help millions more improve their lives.
Haq's Musings: American Shale Fracking Fuels Demand for South Asian Guar
