* U.S. energy firms can't get enough of guar gum, vital for
* India produces 80 percent of global supplies of guar beans
* Indian farmers cashing in on strong demand
* Prices, and supplies, seen easing in 2013 as more crop
comes onto market
By Meenakshi Sharma and Selam Gebrekidan
MUMBAI/NEW YORK, May 28 In India's northern
desert states, farmers are scrambling to harvest as much as they
can of a bean with the power to lift them out of poverty. In the
United States, the multi-billion dollar shale energy industry is
banking on their success.
U.S. companies drilling for oil and gas in shale formations
have developed a voracious appetite for the powder-like gum made
from the seeds of guar, or cluster bean, and the boom in their
business has created a bonanza for thousands of small-scale
farmers in India who produce 80 percent of the world's beans.
"Guar has changed my life," said Shivlal, a guar farmer who
made 300,000 rupees ($5,400) - five times more than his average
seasonal income - from selling the beans he planted on five
acres (two hectares) of sandy soil in Rajasthan state.
"Now, I have a concrete house and a colour TV. Next season I
will even try to grow guar on the roof."
Guar gum, which is also used to make sauces and ice cream,
is a main ingredient of the hydraulic fracturing, or fracking,
process used to extract oil and gas from oil shale.
Fracking has been called the technology that will change the
geopolitics of energy, boosting domestic North American gas
supplies to such an extent that experts predict the net
importing region will soon turn into a significant gas exporter.
It has also turned guar into a precious commodity farmers
now call "black gold". In the Rajasthani city of Jodhpur, under
the shadow of an ancient fort, traders buy guar seed at 305
rupees ($5.5) a kg, a 10-fold increase from a year ago.
"The whole world got caught not ever thinking they would
need as much guar as they do now," said Wade Cowan, co-owner of
West Texas Guar Inc., a Brownfield, Texas, company that supplies
the powder to U.S. energy companies.
India, on average, produces more than 1 million tonnes of
guar beans annually, the biggest crop in the world. It exported
more than 400,000 tonnes of guar products, including gum, in the
fiscal year that ended in March 2011. Exporting beans is
U.S. energy firms, however, will need nearly 300,000 tonnes
of guar gum this year, energy investment banking firm Simmons &
Company International said in a February report. Last year, the
guar shortfall forced some U.S. firms to halt fracking, it said.
"There is a shortage of seeds. Last year, good quality seeds
were available at around 60 rupees a kilo but now, traders are
demanding over 500 rupees per kilo for the same seed," said
Shyam Lal, a farmer based in the Churu district of Rajasthan.
GUAR'S RISE TO GLORY
Guar gum is used to increase the viscosity of proppants,
materials which are forced into shale fractures to enlarge them
so that the oil and gas can be extracted. It also helps reduce
friction, which in turn decreases the energy consumed.
In March, the United States bought 33,800 metric tonnes of
guar gum from India, the highest amount ever. Last year, U.S.
firms bought an average 22,000 metric tonnes from India a month.
About nine tonnes of guar gum are used per well. Some
companies are also fracking wells several times to squeeze out
as much as possible, which means using even more guar.
As a result, guar prices in India has risen rapidly, so fast
that the local commodity exchanges halted trading in guar
futures in late March amid a ministerial inquiry.
David Lesar, CEO at market leader Halliburton,
recently said the cost of the guar gel now accounted for up to
30 percent of fracking costs to customers in some basins.
"The problem with guar is it is probably the fastest-moving
commodity price that I have ever seen," Lesar said.
To cash in on the guar rush, Vikas WSP, India's
largest producer of guar gum, is distributing, free of charge,
seeds worth more than 900 million rupees to 100,000 farmers and
giving them guaranteed returns, said B.D. Agarwal, its chairman
and managing director.
Some farmers are planting more seeds early this year, taking
advantage of early rain. [ ID:nL4E8GF5AV]
"This upcoming season supplies will definitely be higher
than 2011," said Uday Merchant, managing director of Lucid
Colloids, a guar exporter based in Mumbai.
The United States produces guar, but only on 40,000 acres
(16,187 hectares), an area that pales in comparison with the
more than 10 million acres (4 million hectares) Indian farmers
are expected to plant this year in th e Thar desert.
In 2011, about 20,000 acres were planted with guar in Texas
but only 5,000 acres were cultivated as the crop was hit by
drought, said guar supplier Cowan. He estimates the planted
acreage might be twice as much this year.
SEARCHING FOR SUBSTITUTES
With the North American shale boom expanding to China, South
America and Eastern Europe, oil field services firms around the
world are poised to gobble up guar. U.S. industry researchers
reckon the global fracking business will grow to $37 billion in
2012, up $6 billion from a year earlier.
But the rising prices and tight supplies are spurring a
search for alternatives.
"Guar substitutes become attractive at a certain guar price.
We're at that price right now," said Tim Probert, Halliburton's
president of strategy and corporate development.
Halliburton touts its "CleanStim" technology as a
possibility while Schlumberger points to "HiWay," which
it says will cut back on the water and sand use in fracking.
Both firms did not provide specific details about their
products, which they said can replace proppants.
CleanStim technology has been used effectively in a number
of basins, including the Eagle Ford prospect, and will
essentially create a ceiling on guar prices, Probert said.
Other industries that use guar, such as paper, food
processing and textiles, have already turned to alternatives.
For fracking, replacing guar will only make sense if prices
continue to rocket. But guar producers expect prices to ease by
2013 as the new crop comes to market and supplies increase from
all the extra acreage planted.
Guar merchants say prices, like those of many agricultural
commodities in India, will hinge on the monsoon rains. The rains
are expected to arrive on time at the beginning of June and
progress as normal.
But even if guar eases from its current levels, prices would
still be highly profitable for farmers who cultivate the crop at
very little cost.
And the robust demand from the U.S. shale oil and gas
industry shows no sign of abating.
"We're out desperately trying to find more of this product
to process for the market, because we could sell all we can
find," Jim O'Brien, chief executive officer of U.S. chemical
maker Ashland Inc, said.
($1 = 55.4050 rupees)
(Additional reporting by Deepak Sharma in Mumbai and Braden
Redall in San Francisco; Writing by Jo Winterbottom; Editing by