Mountains of smooth, yellowish sand have built up around rail terminals in the Midwest, en route to U.S. shale oil and gas plays. The chalky "frac sand" keeps crude flowing smoothly during hydraulic fracturing, making it one of the most sought-after commodities in Wisconsin and Minnesota.
The budding frac sand industry's future hinges on the survival of the U.S. shale oil and gas boom. But frac sand's fate is also tied down to the web of freight railroads that criss-cross the Midwest.
"Rail is really integral to the whole [frac sand] industry," said Thomas Woletz, senior manager at the Wisconsin Department of Natural Resources. "If there is a bottleneck right now, it's from the transport infrastructure, not the lack of sand or mines. It's the lack of ability to get it out."
North America's leading freight railroads haven't failed to notice the appetite for silicate sand. Rail giant Union Pacific Corp. has a "Sand 2 Shale" program in place to expedite delivery to areas such as the Permian Basin and Eagle Ford shales in Texas.
Canadian National Railway Co. recently announced it would speed up its $33 million upgrade of a branch line that runs through prime frac sand territory in Wisconsin's west-central region. Canadian National said it would focus on the 74-mile stretch between Wisconsin Rapids and Blair, Wis., prepping the tracks to handle heavier loads and faster trains. Canadian National now expects to finish the improvements by December 2014, a year earlier than originally planned.
The rail-sand symbiosis works both ways, however, as seen less than 40 miles down the tracks in Winona, Minn. There, a rail loading terminal has temporarily closed its doors and officials report stagnant frac sand traffic in part due to infrastructure restraints.
"We're basically on a sand bar in the Mississippi River valley, so land is limited," said Carlos Espinosa, assistant city planner for Winona. "So the ability to create unit trains in the city is limited as well."
Winona sits at the confluence of several major rail lines, including a Canadian Pacific Railway Ltd. route. In addition to operating the Soo Line along the Mississippi River, in 2008 Canadian Pacific acquired the Dakota, Minnesota & Eastern (DM&E) railroad that runs west from Winona to South Dakota. The railway company did not respond to requests for comment about its Minnesota operations.
"We do have capacity to send out frac sand via rail," Espinosa said, "but the real room for growth is in western Wisconsin, where they have a lot more land, a lot more area."
The regulatory environment in Wisconsin is also seen as friendlier toward frac sand miners. The Minnesota Legislature recently allowed local governments to extend moratoria on mining for up to two years, and companies hoping to mine on more than 20 acres of land must now complete a costly environmental impact assessment (EnergyWire, May 24). Critics of the frac sand industry often take issue with increased traffic near mining sites and point to the health hazards posed by silica dust.
Local pushback, infrastructure and regulatory constraints have combined to keep Minnesota's frac sand industry relatively small. Wisconsin has roughly 105 active frac sand mines, according to the state DNR, while Minnesota can claim eight or nine.
"Everything's working against [frac sand] in Minnesota right now," said Dave Christianson, senior planner for freight and rail at the Minnesota Department of Transportation. "And the industrial development in Wisconsin is pretty much picking up all the slack."
Christianson said many of the richest sand deposits in southeastern Minnesota fall too far away from existing rail lines to be readily developed. While frac sand companies in Wisconsin sometimes truck their product as far as 60 miles to reach rail or barge terminals, shipping directly by rail can save frac sand producers as much as $10 per ton, according to a Sept. 14, 2012, Raymond James report.
That gives frac sand producers in rail-connected cities like Shakopee, Minn., or Taylor, Wis., a competitive advantage.
"You can only truck sand a certain distance before it's not cost effective," said Martin Lehman, a spokesman for Berlin, Wis.-based Badger Mining Corp., which has operations on a Canadian National rail line in Taylor.
Lehman sits on the board of directors for the Wisconsin Industrial Sand Association, a newly formed trade group.
"Rail is a pretty critical aspect of our operations," he said. "We wouldn't be able to ship sand to many of the locations that we can economically, so we would be out of a lot of markets without the railroads."
U.S. railroads shipped 112,000 carloads of industrial sand in 2009, according to the American Association of Railroads, a trade group that tracks freight statistics. By 2012, that number surged to nearly 293,000 carloads -- with the AAR crediting much of that increase to demand for frac sand.
Canadian National spokesman Mark Hallman declined to elaborate on its frac sand business in the Midwest, citing competitive reasons.
However, Jean-Jacques Ruest, Canadian National's executive vice president and chief marketing officer, said the company's growing footprint in Wisconsin reflects a wider strategy in a May 28 statement.
"We are investing in increased rail capacity on the Whitehall Subdivision [in Wisconsin] to help move more frac sand and to develop a more robust supply chain for our customers in Wisconsin to connect with the oil and gas shale basins in North America," Ruest said.
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