* Railroads, new pipelines vital to keep crude flowing to
* Refining exports thrive on abundant U.S. oil, natgas
* Top investor sees 800,000 U.S. jobs from energy boom
* Cheaper fuel poses challenges for nascent clean tech
By Braden Reddall
Nov 18 Railroads, pipeline companies and
refiners stand to do especially well from a U.S. drilling
bonanza that is upending the energy trade balance for the
world's largest economy.
An anticipated surge in U.S. oil output to the highest
levels in the world would give a boost to those who move crude
to where it can be turned into finished products and even
Shares of pipeline companies Kinder Morgan, Williams
Cos Inc and Energy Transfer Equity have slipped
in recent weeks. But all three are up sharply since Kinder
struck a deal to buy rival El Paso in October 2011, which
underlined the importance of their pipes to the U.S. shale boom.
The International Energy Agency (IEA) made a stir last week
by saying U.S. oil output could top that of Saudi Arabia and
Russia by 2017, raising the prospect of e n ergy self-sufficiency
for the biggest oil consumer on the planet.
The United States is already plentifully supplied with
natural gas, providing a cheap raw material for chemical and
fertilizer makers and inspiring talk of a manufacturing
renaissance based on the clear competitive advantage of cheaper
power and steady supply.
Billionaire investor Wilber Ross responded to the IEA
forecast with a prediction of 800,000 new U.S. jobs over the
next few years as a result. He tallied the inevitable increase
in oil and gas extraction that will benefit companies such as
Halliburton N> and Baker Hughes, as well as growth
"In recent years the chemical companies and plastics people
mainly have been investing overseas," Ross told Reuters last
week. "Now people like that are getting ready to do plants here.
So that's a big deal and part of the 800,000 jobs as well."
Last month, energy consultant IHS said shale drillers alone
currently support 1.7 million high-wage U.S. jobs, a figure that
is expected to grow to 2.5 million over the next three years.
Towns like Midland, Texas, located in the Permian Basin or
Williston, North Dakota, in the Bakken formation should benefit
from that growth as workers in those areas spend on housing,
entertainment and food.
Such a dramatic shift in economic activity can cause severe
problems in communities, however, as witnessed in the housing
shortages and crime wave gripping North Dakota. An influx of
tens of thousands of oil workers away from their families has
overwhelmed police forces.
The IEA projections do not seem to allow for the dearth of
engineers and skilled labor that the U.S. oil industry is
already struggling to address.
While staffing providers like ManpowerGroup are
diversified, local or more specialized employment services
companies could help companies fill this gap.
One is Rigzone.com, a website specializing in professional
job listings in the energy sector. Dice Holdings Inc
bought Rigzone in 2010, later combining it with WorldwideWorker,
another 2010 acquisition that helped Dice triple its energy
revenues in 2011 and grow by double digits so far in 2012.
On Assignment Inc, TrueBlue Inc, CDI Corp
and Aerotek, a unit of privately held Allegis, are
staffing providers that also are likely to provide workers to
the energy sector.
DRILL, BABY, DRILL
An energy boom is not automatically good news for oil and
gas producers; a burst o f new supply can push prices down and
cut into margins.
The gas glut has already cut into profit at Exxon Corp
and Chesapeake Energy, which both made large
bets on U.S. natural gas and are still waiting for prices to
recover from the effects of oversupply.
That's why many investors see opportunity in oil service
companies. Shares of Colfax Corp, which makes pumps used
for pipelines and refineries, are up 26 percent so far this
year. Graco Inc, a maker of pumps and metering devices
for wellheads, has increased by 12 percent in value in 2012.
Xylem Inc is a supplier of pumps and analytical
equipment to fracking sites as well as to the state and local
authorities monitoring them, and its chief executive, Gretchen
McClain, sees plenty of room to grow if regulators allow it.
The outlook for fracking depends on "decisions that are made
in terms of how aggressively we'll go after natural gas," she
said. "The technology is there to be able to do it correctly."
But the controversy around the safety of fracking has made
some investors think twice about the IEA prediction.
That prediction assumes that the Environmental Protection
Agency rules on fracking and technology don't change, said Mario
Gabelli, chairman and CEO of GAMCO Investors Inc. A progress
report on an EPA investigation into the risks of fracking for
drinking water is expected late this year.
RAILROADS 'NOT JUST A STOP-GAP'
Since pipelines are not built overnight, analysts point to
the vital role played by railroads such as Union Pacific
and Canadian Pacific. Crude shipments by rail have
surged to 340,000 barrels per day (bpd) this year from 11,000 in
2007, according to the Association of American Railroads.
"Railroads offer the shippers of crude flexibility you just
can't get with a pipeline because you have the ability to divert
to the exact destination you wish, where the market's the best,"
said Keith Schoonmaker, a Morningstar analyst in Chicago.
"Also, it's much less capital-intensive to hire a rail to
haul than to build a pipeline, in the short- and mid-term."
EOG Resources CEO Mark Papa estimates the time lag
on getting pipelines built at five to eight years.
"Crude-by-rail is not just a stop-gap measure," Papa said.
Schoonmaker also highlighted the role railroads play in
moving steel pipes to drilling sites along with the mountains of
sand pumped into wells during hydraulic fracturing.
Meanwhile, the U.S. gas glut already has given a big lift to
fertilizer makers Rentech Inc and Agrium Inc.
Rentech noted its nitrogen fertilizer margins reached as high as
65 percent in the second quarter, thanks to cheaper gas.
U.S. chemical companies Dow Chemical and DuPont
have made clear that the gas boom has totally altered the
way they operate, unveiling plans in the past few years to build
plants at home.
Increased U.S. crude and natural gas output is a clear win
for refiners, particularly those with plants near the most
prolific plays in Texas and North Dakota, since buying crude
from inland basins is far cheaper than shipping it from abroad.
Plus, they can use the cheap natural gas to run their plants.
Bill Klesse, CEO of refiner Valero Energy Corp,
expects U.S. shale oil to displace light-sweet crude imports to
the Gulf Coast altogether within two or three years.
While U.S. gasoline demand is flat and sending excess crude
abroad would require government permission, U.S. refiners can
export the gasoline and diesel they produce. Just last year the
United States became a net exporter of refined products for the
first time in 62 years.
That export demand was a key factor in Marathon Petroleum
Corp's decision to buy BP Plc's 400,780-bpd
refinery in Texas City, Texas. Marathon intends to start
exporting from there after the $2.5 billion deal closes early
ANOTHER BLOW TO CLEAN TECH
Yet what's good for refiners is rarely good for the clean
technology sector, from advanced batteries to alternative fuels.
Solar companies have already taken a hit from low natural gas
prices, which make for an affordable alternative to coal.
Even high-profile green cars from major global vehicle
manufacturers, such as the battery-powered Nissan Leaf and
hybrid gasoline-electric Chevrolet Volt, could see sales dwindle
if fuel supplies become abundant. Sales of larger vehicles could
benefit, including a new generation of full-size pickup trucks
and utility vehicles that General Motors will launch in 2013.
David Fann, who runs TorreyCove Capital Partners, a San
Diego, California, private equity consulting firm, put the blame
for a recent de-emphasis of clean tech squarely on fracking.
"Clean technology only works when people expect that we are
going to be constrained on the energy side," he said. "The idea
now that we have 100 years' supply of natural fuel sources is in
many ways a game-changer in how we are going to think about the
"The urgency to adopt clean tech has changed," he added.
"Its costs relative to other sources make it harder for us to