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A Jack-in-the-Beanstalk Investment: Finding the Fracking Bean

The drilling technology that makes the process of hydraulic fracturing possible depends on a special bean that is only grown in India in significant quantities and for which there was no viable substitute in the US until June this year.

The natural gas boom brought on by the fracking revolution has been particularly fortuitous for Indian subsistence farmers who grow the guar bean that is used in the process, and as demand for the special bean has risen exponentially, so has the price. While prices have since stabilized, the first half of this year saw prices increase 80% in the US. Last year, rampant speculation over the bean even prompted Indian authorities to close down guar futures trading on the commodities market and punish a handful of brokerage firms after prices were pushed up due to speculation.

How does the super bean work? The guar bean has a powdered-gum-like extract called hydrocolloid, which forms a gel when mixed with water. This gum is used to keep cracks in shale rock open during the fracking process. 

The bean is predominately grown in Rajasthan, India, and until the fracking revolution was used as cow feed and for a wide range of food products. Some 80% of all guar beans are grown in India.

With prices on the rise, and easing only slightly in recent months, the race has been on to come up with a substitute for the bean that would boost supply and keep prices down. The investment opportunity is immense here, but the window for getting in on the ground floor is already closing. Virtually anything related to the natural gas industry right now is a smart investment, but focusing on the lesser known technological aspects, the small details that make fracking possible, is even smarter.

In the second quarter of this year, two substitutes for the guar bean extract hit the market, AquaPerm, from the labs of Baker Hughes, Inc. and PermStim, from the labs of Halliburton. In June, the two filed for trademarks for their guar alternative fluids. A number of other labs are also attempting to develop substitutes; among them, Ashland Inc., Nabors Industries Ltd. And Trican Well Service. 

How are the substitutes faring so far? Baker Hughes claims to have replaced 5% of its guar bean product with AquaPerm and plans to see that doubled by the end of this year, according to Reuters. Halliburton is a bit further behind, having just deployed its guar substitute to some 40 wells. The rest are still in the development and testing phase, but not likely for long.

Guar gum is a good investment all around, but fracking has pushed this little bean over the edge. The bean’s unique powdered gum extract is used in a number of food items, such as ice cream and sauces, as well as in textiles, cosmetics and pharmaceuticals. But natural gas fracking requires a massive amount of guar beans—by some estimates as much as 20,000 pounds to frack a single shale formation. According to Time magazine, exploration companies could use around 1,700 tons a month at a cost of around $40 million. This is just one example and tonnage and costs have varied substantially, but you get the idea. 

The trick is ensuring that the substitutes are produced cheaply enough to be a viable substitute for guar gum. And so far, word on the street is that the substitutes don’t work quite as well as the original guar—so research and development is still key—and this is the investment to get in on.

By. Oilprice.com analysts

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