Guar price could perk up on demand from shale gas sector

India is the largest producer of guar and accounts for about 80 per cent of the total global guar production.

The unique binding, thickening and emulsifying quality of guar gum powder obtained from guarseed has made it a much sought after product in the international market.

Guar now accounts for around 18 per cent of India’s total agricultural exports(DGCIS & APEDA, 2012-13).

The US is the largest producer of shale gas with a huge reservoir of around 665 trillion cubic feet (Energy Information Administration estimates).

In recent years, production of shale gas has increased manifold in the US. There has been an increase of around 2.6 times over a period of three years.

The growth of shale gas industry in US at such a pace, presence of other major players such as Canada and expansion of shale gas extraction to new territories like China and Russia is poised to increase the demand for guar.

The use of fast hydrated gum as a key ingredient in the process of fracking has helped consolidate the demand of guar in the international market.

During the process of fracking, a lot of toxic chemical and gases come out from the system and contaminates ground water.

The concentration of methane has been reported to be 17 times higher in ground water wells near fracturing sites than in normal wells.

Only 30-50 per cent of the fracturing fluid is recovered and rest of the toxic fluid is left in the ground which is not bio-degradable.

This creates tremendous scope and utility for the environment-friendly bio-degradable guar gum powder in the process of fracking.

The increased demand is certainly going to have an escalating impact on the prices of guar.

The cultivation of crop mainly under rain-fed conditions and confined largely to limited geographical area may also lead to great uncertainty and volatility in prices. An attempt has been made to estimate the prices and demand of guar in the light of expansion of shale gas industry.

More than 85 per cent of the total variation in the export demand of guar is explained by shale gas production which is significant at one per cent level.

Guar prices in 2014-15 and 2015-16 are expected to rule high based on the expanding demand from the shale gas industry. Prices are expected to rule high even when it is assumed that the production of the guar crop in the country will increase some 6 per cent annually.

Prices are expected to touch ₹10,111/quintal in 2015 and could rise up to ₹11,729 in 2020 on increasing demand from shale industry as seen in the accompanying table.

The high prices of guar riding on the demand for the crop from fracking industry would make the crop lucrative for the various players involved in the entire value chain, mainly producers. But it will also offer the challenge to the industry to ensure consistent supply of the crop at competitive price.

Failure of the value chain to meet these challenges may force the fracking industry to search vigorously for alternatives.

Bio-degradable alternatives to guar gum are already being explored by the industry. In order to remain competitive, the producers and other players have to ensure consistent supply, stable prices and quality.