Rise of commodity: As oil rises, guar gum exporters hope to ride shale boom, again

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New Delhi | Published: April 30, 2018 5:50:14 AM

India makes up for 90% of the world's guar seed production, of which 72% comes from Rajasthan. Around 90% of guar gum (processed out of guar seeds) is now exported, according to the Agricultural and Processed Food Products Export Development Authority.

Having crashed for four years in a row, India’s guar gum exports turned the corner with a near 40% jump to 7 million in 2017-18Having crashed for four years in a row, India’s guar gum exports turned the corner with a near 40% jump to 7 million in 2017-18.

Guar gum, an extract of guar seeds, was used primarily as just a stabilising agent in ice creams and personal care products a decade ago. Then the shale boom took place and giant US corporations like Halliburton and Schlumberger gobbled it up in massive volumes to exploit its value as a thickening agent, to be used in the hydraulic fracturing process for extracting oil and gas from oil shale. Export prices jumped more than eight times in only four years and guar gum emerged as India’s largest farm export item in 2012-13, earning almost $4 billion in foreign exchange. Then oil prices started to drop, so did rig counts in the US. The fortune of millions of farmers growing guar seed began to reverse, as gum exports collapsed to just $467 million by 2016-17.

That is changing again, with a rise in oil prices since last year. Having crashed for four years in a row, India’s guar gum exports turned the corner with a near 40% jump to $647 million in 2017-18, according to the latest official data (see the chart). With global crude oil prices expected to remain elevated (thanks to an OPEC-led deal to restrict production) and US shale oil production rising at a fast pace in recent months, guar gum exports will likely touch $1 billion in 2018-19, said an official source.

US crude production has climbed by a quarter since mid-2016 to hit a record 10.54 million barrels per day (bpd) for the week ended April 13. Fueled by the shale boom, US oil production exceeded the crucial 10- million bpd mark in November last year, which was the highest in at least 47 years. This pace of crude oil production also crossed that of Saudi Arabia, leaving the US behind only Russia in terms of total crude production.

Having crashed to an average of $43 a barrel in 2016 from as much as $94 in 2012, the West Texas crude oil price has again inched up to $63 in 2018.

The US accounted for 54% of India’s guar gum supplies in 2017-18, followed by Norway (7%), Russia (6%) and China (6%).

India makes up for 90% of the world’s guar seed production, of which 72% comes from Rajasthan. Around 90% of guar gum (processed out of guar seeds) is now exported, according to the Agricultural and Processed Food Products Export Development Authority. This dominant position in production gives India a decisive edge to boost its farm export value by shipping out more guar gum–prices of which are closely tied to those of crude oil–in good times.

“If the US oil prices touch $110 per barrel, maybe 3-4 years from now, guar gum exports could easily touch $5-6 billion a year,” said the official source.

Rajesh Kedia, director at Jai Bharat Gum and Chemicals, one of the largest manufacturers of guar gum, said: “As crude oil prices are going up, the prospects of guar gum exports have brightened. We expect exports to only rise from here for some years. Per-unit export realisation is set to rise as well”.

Areas under guar seeds jumped from almost 3 million hectares in 2009-10 to as much as 5.4 million hectares by 2014-15, despite mixed fortune, showed the farm ministry data.

Guar is a relatively drought-tolerant as well as a short-duration crop that is sown around end-July and harvested in November. Apart from producing gum, guar seeds are processed into protein-rich meal to feed cattle.

Guar gum is blended into the millions of barrels of water that are forced into each well for shale drilling. It thickens the fluid, suspending sand and ceramic beads so they can be forced into fractures in the energy-bearing rocks. The proppants allow oil and gas to seep out of shale, which without guar would otherwise settle at the bottom of wells.

However, while the long-term prospects of guar gum seem bright, the regular cycle of boom and bust in such exports, coinciding with the oil price movement, can’t be ruled out unless the geographical spread of the supplies are considerably widened, said analysts. Also, if prices are unreasonably jacked up, exports may suffer, as buyers would scout for alternatives. Senior executives of American firms like Halliburton have already hinted at using alternatives if guar prices shoot beyond a comfort zone.

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