The rise of synthetic substitutes means the guar bubble may be over

The rise of synthetic substitutes means the guar bubble may be over

What do bean farmers in India’s Rajasthan and US sand miners in Wisconsin have in common? They have been the beneficiaries of the shale revolution and the fracking boom to release oil and gas from rock.

The guar, or cluster, bean is a legume native to India and is a source of a powder used to create a gel-like ingredient used in fracking fluid. Guar gum helps thicken the fracturing fluid, which suspends “frac sand” and carries it to the cracked rock. The sand then props up the opening, allowing the oil or gas to flow to the well.

Guar bean and sand producers now face lower demand from frackers because of the oil price plunge, but even before the fall in crude oil prices, Indian guar farmers were already feeling the move from boom to a bust.

Guar has traditionally been a minor crop grown as a food and animal feed in India, before it became widely used as a thickener and stabiliser in food, cosmetics and pharmaceuticals. In India, which is the largest producer of guar and accounts for 80 per cent of global supply, both acreage and production has almost doubled over the past decade. Farmers grew guar on 5.6m hectares of land producing just over 2.7m tonnes in the 2013-14 crop year, according to the US Department of Agriculture.

The gum made from the humble bean became India’s largest agricultural export to the US thanks to fracking.

Prices spiked amid the rush for guar from mid-2011, and the market hit an all-time high of Rs95,920 ($11,552.73) a tonne after fears of a guar shortage in 2012. This prompted the Indian authorities to ban exchange trading, and when the market reopened in mid-2013 prices were less than a third of the peak at around Rs27,700 a tonne.

The market is now falling further due to “lower demand from the shale oil and gas sector”, says commodities data group Mintec. Guar is currently trading at around Rs11,000 a tonne, down more than 30 per cent since October last year.

The guar bubble seems well and truly over, and the introduction of new synthetic substitutes suggests that another one is unlikely to happen again. Since the demand and price surge, oil services and chemical companies have launched their own fracking fluids to replace guar.

Halliburton, for example, says its fluid system “provides a cleaner, more robust system that results in more cost-effective treatments and improved well performance through the elimination of guar residues that can impede oil or gas flow”.

The Commodities Note is an online commentary on the industry from the Financial Times