The price of guar gum, a product used to thicken food for decades, has been up and down this year. The gum is made from guar beans grown in India. The country produces over 1 million metric tons of guar beans and exports nearly half a million metric tons of guar products annually. Guar gum is also used in medical products and to thicken and bind various products like pills and lotions. Recently, guar gum has been put to a different use. Hydraulic fracturing (or fracking), the process by which hard-to-get natural gas is extracted from shale, requires a “gelling” product, a hydrocolloid, to keep cracks open as water and natural gas are pumped back out. Guar gum has proven to be an economical alternative to other gelling agents used in fracking and less detrimental to the environment.
Indeed, fracking is rapidly becoming the largest market for guar. Over the past 2 years, the demand for guar gum rose from 250,000 metric tons to 480,000 metric tons per year. That’s why in March 2012, when the Forward Markets Commission (FMC) of India closed physical guar contracts for the season, drastically reducing exports, an outcry arose. The Commission’s reason was the rapid rise in guar prices; between December 1, 2011 and March 27, 2012, the price of guar almost quadrupled. This caused inflation in food prices, especially in parts of India such as the desert state of Rajasthan, where guar is still used as a primary protein source. Since the FMC’s intervention, however, the price of guar seeds has fallen 7% and the price of guar gum is down 6%. The market is expected to open for contracts again sometime in the next few months, once guar crops have been sown. However, potential droughts could mean a short supply of guar, despite high demand. Prices are expected to soar again as soon as the FMC reopens the guar market.
Due to the highly unstable supply and fluctuating prices of this humble bean, many companies are now exploring alternative gelling options. TIC Gums, for example, is introducing Ticaloid Guar Replacement (GR) 8700, a complete replacement for guar gum in applications ranging from fracking to food additives. Other companies experimenting with guar substitutes are Baker Hughes Inc., Halliburton Co., Nabors Industries Ltd., Trican Well Service, and Ashland Inc.
The lack of a reliable, inexpensive hydrocolloid means natural gas markets may not expand as rapidly as initially projected. Indeed, the pace of natural gas drilling in Pennsylvania has slowed considerably since 2010, from an average of 6 new wells to 4.6 wells per day. Lower supplies of natural gas would slow the shift away from coal, nuclear, and other forms of power generation. Finding a synthetic substitute for guar could stabilize price and, therefore, the supply of natural gas. Once the export ban is lifted, though, impoverished farmers in Rajasthan will enjoy high-demand from the fossil fuel industry halfway around the world.
Tags: Finance & Investing, Fossil Fuels, Natural Gas, Policy & Regulation, Smart Energy Practice
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