A frac sand mining operation in Tunnel City is shutting down and will be laying off 65 workers after a yearlong lull in the U.S. oil and gas drilling industry.
The plant is owned by Connecticut-based minerals producer UNIMIN, which has mines in Wisconsin and across the country. Company CEO Drew Bradley said the frac sand market has suffered after a significant slowdown in the US oil and gas industries that began in January of 2015.
"We’ve come to the point where markets just don’t seem to be recovering in the near term," he said. "Our customer orders are down, demand is down, pricing is down and at this point it’s just uneconomic to keep the Tunnel City plant operating."
UNIMIN’s Tunnel City operation was built to supply frac sand to drillers in what’s called the Bakken Shale play of North Dakota and southern Montana, which saw an incredible growth in the number of oil and gas wells between 2012 and 2015. But with oil prices just more than half of what they were in two years ago, new well completions have stalled. Since transportation costs are significant for frac sand, Bradley said the decision was made to shutter the plant rather than shipping the sand to wells in other parts of the U.S.
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"The logistics of getting it from the plants to the location where it’s consumed is a critical part of the equation. It’s more expensive to ship it from Tunnel City down to places which are still active in Colorado and Texas. It was sited well for the Bakken," Bradley said.
Global oil prices began their crash in the fall of 2014 when countries in OPEC, the Organization of Petroleum Exporting Countries, increased production, causing a glut on the world market. According to Bradley, U.S. oil and gas drilling won’t ramp back up until that oversupply is used up and prices begin to stabilize.
When that will happen, he said, is anyone’s guess.