Energy boom brings new life to old businesses across U.S.

11/30/2013 12:00 AM

11/12/2014 3:26 PM

This rust-bucket town near Buffalo is a perfect example of the transformation that fracking has brought to American business, where new life has been breathed into manufacturing and railroads even as much of the economy lumbers along.

On land that three decades ago bustled with thousands of steelworkers, then lay fallow for years when America’s steel industry went bust, a new business now thrives: Welded Tube USA, whose parent company is Canadian. In September, the new Lackawanna plant started making steel pipes for companies that drill for natural gas and crude oil.

In its first year, Welded Tube plans to make about 100,000 tons of steel pipe used to push deep below the surface in search of oil and natural gas.

That’s more than five Eiffel Towers annually on a single shift. A second shift is being eyed for February, and if the boom continues, plans call for more than tripling output to 350,000 tons, something the owners expect to happen within five years.

“We were primarily a nonenergy tube producer until 2005,” said Robert “Butch” Mandel, the company’s president, who recognized that the boom in horizontal drilling would mean opportunity.

“We started to reconfigure our capacity [in Canada] to produce pipes. … We decided at that point … we wanted to locate an operation that was close to the Marcellus and Utica shale plays,” two of the most significant gas fields in the United States.

The desire to be near underground deposits of energy resources brought Welded Tube to the former home of Bethlehem Steel’s giant plant.

The shiny new 110,000-square-foot facility sits on 40 acres within a mostly overgrown 1,000-acre parcel in Lackawanna. The building, 1,000 feet long, is surrounded by weeds and shrubs that have overrun the vestiges of a period when steel was king and this was a gritty industrial city.

Steel may no longer be king, but the energy boom is giving parts of the nation unexpected opportunity. Whether it’s extraction of natural gas in Ohio, Pennsylvania or West Virginia or crude oil being pumped from Texas or remote corners of Montana and North Dakota, the boom that is turning the U.S. into “Saudi America” has sent out tentacles that have benefited businesses far and wide.

“I think almost every state has something tied to the energy boom. Even states that have practically no energy sector are seeing some benefit from it,” said Mark Vitner, a senior economist with Wells Fargo Securities. “I think it has the potential to be the type of game-changing event that shapes the economy for the next quarter-century.”

Powering job growth

The abundance of natural gas has made electricity cheaper as more local utilities switch their generating plants from coal to gas to take advantage of the lower cost.

Because of that, products made in the United States are more competitive globally. Analysts expect that to last awhile as other nations work to catch up with U.S. technology that allows horizontal drilling and fracking — hydraulic fracturing — of oil and gas deposits.

“I think we have five or 10 years of running room here,” said Daniel Yergin, the oil historian whose 1992 book on the industry, The Prize, won a Pulitzer Prize for nonfiction and whose 2011 work, The Quest, is considered the authoritative look at energy security and geopolitical struggles over oil.

The boom has also created jobs at a time when they’ve been largely lacking.

The number of people working in oil and gas extraction grew from 102,200 in 2003 to 186,800 in 2012. Numbers for 2013 through October show that almost 200,000 people work in the industry, according to the Bureau of Labor Statistics.

The figures are even more impressive for jobs that support oil and gas operations. Those jobs more than doubled, from 121,200 in 2003 to 282,000 last year and 305,300 through October, the bureau said.

Oil by rail

The boom has been a boon for railroads, which have stepped in to move crude from the new oil-producing states of Montana and North Dakota in an era when pipeline construction faces a host of political and environmental hurdles.

Fort Worth-based BNSF Railway serves all the western locations where oil is being drawn from the Bakken and the Williston formations, which span Montana, North Dakota and the Saskatchewan province of Canada. BNSF carries about 650,000 barrels of oil a day on its rail network. A barrel yields about 42 gallons of gasoline, so that works out to the equivalent of 27.3 million gallons of gas daily.

“I don’t think that there was the ability to create enough pipelines quick enough going to all the various markets that this oil wanted to go. People still have a tough time believing that a railroad can be like a pipeline,” said David Garin, vice president of industrial products at BNSF. “We’ve helped to create energy independence. … It really feels good to us.”

Investment titan Warren Buffett has grown richer on the good fortunes of railroads. His Berkshire Hathaway first bought a stake in BNSF, then the entire company in February 2010. At $100 per share in cash and stock, the acquisition was Berkshire Hathaway’s largest-ever.

Railroads boast a speed advantage, moving oil at 15-20 mph, compared with pipelines, which push through oil constantly but at 4-5 mph.

Railroads are also moving vast amounts of industrial sand, pushed through the pipes during fracking. A single horizontally drilled well uses 3,000 tons to 10,000 tons of sand. Major railroads carried 293,000 carloads of industrial sand last year, compared with 112,000 in 2009.

“Hydraulic fracturing and horizontal drilling have made that growth so exponential. It’s as if you have moved from the cottage industry to an industrial world,” said Mark Ellis, president of the National Industrial Sand Association.

“Who would have thought that sand would have turned into a major resource?” said Yergin, the oil historian.

In 2008, U.S. sand production was about 33 million tons. By the end of last year, it had surpassed 54 million tons, according to the U.S. Geological Survey.

Energy drillers consumed about 57 percent of that production in 2012, the agency said in a report this year.

Managing water

Water management is also emerging as another unlikely business opportunity associated with the energy boom. As fracking increases, companies are turning to water and wastewater management firms for storage and for saltwater injection of liquids back underground.

“We are at the state of play in the oil and gas environment services industry where we were in the 1990s with mom and pop garbage haulers,” said Jonathan Hoopes, president of GreenHunter Resources, a Grapevine-based waste and water company that is expanding to take advantage of the fracking boom.

Mom and pop well operators and water storage firms are being bought up as companies grow to meet the energy boom. That sort of consolidation happened in solid waste as trash haulers were replaced by giant firms like Waste Management. The same is happening for water management and disposal at fracking sites, Hoopes said.

“I hate calling it a boom, because you think of the boom-and-bust cycle. I think we’re at the beginning of a multidecade transitional shift that’s really going to affect our energy independence and standard of living,” said Hoopes, whose company operates 15 saltwater injection wells, up from just three in February 2012.

These wells receive water that has been used in fracking, sometimes called oil field brine. It’s cleared of contaminants, then injected into deposits where oil and natural gas have been extracted.

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