In Tiny Bean, India's Dirt-Poor Farmers Strike Gas-Drilling Gold
Comment of the Day

July 18 2012

Commentary by David Fuller

In Tiny Bean, India's Dirt-Poor Farmers Strike Gas-Drilling Gold

This is a nice, interesting story (also in PDF) from The New York Times. Here is the opening:
LORDI, India - Sohan Singh's shoeless children have spent most of their lives hungry, dirty and hot. A farmer in a desert land, Mr. Singh could not afford anything better than a mud hut and a barely adequate diet for his family.

But it just so happens that when the hard little bean that Mr. Singh grows is ground up, it becomes an essential ingredient for mining oil and natural gas in a process called hydraulic fracturing.

Halfway around the world, earnings are down for an oil services giant, Halliburton, because prices have risen for guar, the bean that Mr. Singh and his fellow farmers raise.

Halliburton's loss was, in a rather significant way, Mr. Singh's gain - a rare victory for the littlest of the little guys in global trade. The increase in guar prices is helping to transform this part of the state of Rajasthan in northwestern India, one of the world's poorest places. Tractor sales are soaring, land prices are increasing and weddings have grown even more colorful.

"Now we have enough food, and we have a house made of stone," Mr. Singh said proudly while his rail-thin children stared in awe.

Guar, a modest bean so hard that it can crack teeth, has become an unlikely global player, and dirt-poor farmers like Mr. Singh have suddenly become a crucial link in the energy production of the United States.

For centuries, farmers here used guar to feed their families and their cattle. There are better sources of nutrition, but few that grow in the Rajasthani desert, a land rich in culture but poor in rain. Broader commercial interest in guar first developed when food companies found that it absorbs water like a souped-up cornstarch, and a powdered form of the bean is now widely used to thicken ice cream and keep pastries crisp.

But much more important to farmers here was the recent discovery that guar could stiffen water so much that a mixture is able to carry sand sideways into wells drilled by horizontal fracturing, also known as fracking.

The fracking boom in the United States has led to a surge in natural gas production, a decline in oil imports and a gradual transition away from coal-fired power plants. Fracking may also have spoiled some rural water supplies and caused environmental damage in parts of the United States, but it is hard to find anyone in Rajasthan who sees fracking as anything but a blessing.

"Without guar, you cannot have fracturing fluids," said Michael J. Economides, a professor of engineering at the University of Houston who is a fracking expert. "And what everybody is worried about is that there is virtually no guar out there now."

India produces about 85 percent of the world's guar. As worries rose about the prospects for this year's monsoon, which is vital for an adequate crop, speculation over guar production built to a frenzy. Trading in guar futures was even suspended, and with the monsoon still behind schedule, it remains postponed. Ramesh Abhishek, India's chief commodities market regulator, said guar trading would resume when supplies proved adequate.

David Fuller's view The demand for guar is certainly good news for India's poor farmers in some of its most arid regions. Presumably, it will remain so until the global supply of guar eventually overwhelms demand, as it surely will.

The guar story should also provide a small amount of favourable PR for the fracking industry which remains under attack from environmentalists. Presumably, guar does not pose a threat to aquifers. Drillers need to find non toxic fracking substitutes for chemicals that can pollute water supplies. They also need to improve considerably their pipe casings because the cement currently used is too susceptible to leakage.

The share price of Vikas WSP (weekly & daily), the Indian company that specialises in the production of guar powders, soared earlier this year, encountered resistance near its 2007-2008 peaks, retraced half the gain, and bounced impressively from its 200-day MA in June. A close beneath R38 would now be required to offset current scope for sideways to higher ranging in a further test of lateral and psychological resistance just over R70. Despite this year's gains, Vikas WSP still has an indicated yield of 1.72, according to Bloomberg's description page.

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