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Guar gum: it’s in ice cream, toothpaste, and hydro-fracking

When you lick an ice cream cone, eat a grilled-cheese sandwich or brush your teeth, chances are you're consuming a ubiquitous ingredient called guar gum. It's a thickening agent whose profile has recently received a boost thanks to the energy industry, which is using it to unlock previously untappable oil and gas deposits.

In a process known as hydraulic fracturing, or fracking, thickened water (hence the use of guar) is pumped into energy-rich rock formations to create cracks, which allows oil and gas to escape. Fracking technology dates back to the 1940s, but it has only recently become a big part of oil and gas extraction because of the shale gas boom.

So how big is it? One estimate suggests that a typical oil well consumes roughly 4,000 kilograms of guar, putting pressure on the world's guar resources, about 80 per cent of which are in India. That pressure sent the price soaring–it touched $28,000 (U.S.) a metric ton in 2012, up twelvefold in a single year.

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According to Halliburton Co., guar represents about 30 per cent of the cost of fracking, which is cutting into profitability among drillers. In its second-quarter report, Alberta-based Trican Well Service Ltd. blamed surging operating expenses on the jump in guar prices.

The price has been a boon for Indians who used to grow the legume to feed cattle when it was cheap. North American demand now means that Rajasthani farmers have a considerably more comfortable life.

The run on guar has led India to start ramping up production, and farmers in the United States and Australia are also moving in on the action (although the U.S. crop of 50,000 acres pales next to the 8.6 million acres grown in India). However, the greatest threat to the bean's high prices comes from the pursuit of cost-effective guar substitutes.

"Historically, guar has been the lowest-cost gelling agent that we could buy," explains Dave Browne, a spokesman at Trican and also a former fracturing engineer. Now, the price has encouraged Trican and other companies to experiment with rival water thickeners to protect themselves if guar spikes again. But is the bean at risk of being replaced? Not likely. As a natural product, it is environmentally friendly. And even when guar costs 10 per cent to 15 per cent more than chemical substitutes, drillers still prefer the real thing.

"You have to have a big economic incentive to switch," Browne says. "They'd rather use the tried-and-true product."

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More


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