Guar gum exports set to drop

Tags: Commodities

Oil and gas drilling firms seek cheaper alternatives as guar prices soar

Guar gum exports set to drop
India’s exports of guar gum, a thickening agent used for oil and gas extraction, may drop for the first time in three years after a record surge in prices forced drilling companies to seek cheaper alternatives.

Shipments may decline as much as 30 per cent in the year that began on April 1 from 650,000 metric tonnes a year earlier, said PK Hissaria, president of the Indian Guar Gum Manufacturers Association.

Exports in the six months through September were about 100,000 tons and sales will accelerate from this month with the arrival of the new crop, he said. Falling exports may weigh on prices, which have slumped about 63 percent since reaching a record in March, lowering costs for oil and gas drilling services companies including Halliburton Co. and Baker Hughes.

Lower prices will allow food companies easy access to a raw material that s also used as an ingredient in food emulsifiers, additives and thickeners. Low demand and high supply translates into lower prices, said Charlie Blanchard, an analyst with Bloomberg New Energy Finance.

Low prices are good for Halliburton and other users, he said. Guar gum rallied more than nine-fold in one year to 95,920 rupees ($1,742) per 100 kilograms on the National Commodity & Derivatives Exchange.

In Mumbai, forcing the commodity market regulator to suspend futures trading in March. The rally boosted costs for Halli­burton, the world’s largest provider of hydraulic-fracturing services, CEO Dave Lesar said in a conference call with analysts on October 17.

Halliburton and Baker Hughes help firms drill and complete oil and gas wells using a pressure-pumping technique known as fracking, which blasts water mixed with sand and chemicals underground to free trapped hydrocarbons from shale formations. Guar is made into a thickening gel used to carry sand down a well and into the cracks created from fracturing.

The seed is also grown in Pakistan and the US spot prices have slumped to $6,500 a tonne since India banned futures trading and on expectations of a bigger crop, said Mitul Shah, managing director of Rama Industries, India’s third-largest shipper.

Oil and gas drilling companies will use guar only if prices were about $5,500 a tonne, as alternatives such as carbon methyl cellulose were available at lower prices, he said. Higher inventories with the drilling companies and slowing drilling activities had reduced demand for Indian guar gum supplies, Shah said.

Moving into next year we expect a reduction in guar costs as we take deliveries of new lower-cost inventory, which we believe will translate into a tailwind to our PE margins in 2013, Halliburton’s Lesar said. Halliburton has developed an alternative to guar gum called PermStim that’s highly competitive in the event of future guar cost escalation,

Timothy J Probert, president for strategy and corporate development, told analysts. Guar seed production may climb to as much as 2.5 million tonnes this year, enough to make at least 600,000 tonnes of guar gum, from about 1.5 million tons in 2011-2012, manufacturers association’s Hissaria said. The harvest has begun and arrivals will gather pace from the end of this month, he said. zz

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