Natural fit

Oil and gas drilling is driving freight volumes

While overall freight volumes are expanding at moderate growth rates, some segments, like the oil and gas industries, are seeing strong growth rates. High oil prices (Chart A) stimulate oil exploration and drilling, while technology advancements result in the development of new natural gas fields, such as Marcellus Shale in Washington County, PA, and the result is improved freight volume activity.

Demand for energy products is not stimulating a universal increase in energy mining. Coal mining, for example, was 7.7% lower in February than the same period in 2011 and was 13.6% lower than February 2007, the year before the recession. Oil and gas exploration (Chart B), though, was 7.2% higher in February than the same period in 2011 and 19.4% higher than February 2007. In the first two months of this year, natural gas extraction was 17.8% higher than the same period in 2011 and was 37.6% higher than the same period in 2007. Natural gas exploration is booming in response to the opening of new fields due to technological advancement and increased demand for natural gas. Increased exploration is driving freight volumes as materials are needed at drilling sites and product/waste is hauled away from the sites.

The for-hire carrier industry is responding to opportunities in hauling freight for the oil and gas industries. Frozen Food Express Industries, a refrigerated carrier, announced it began hauling bulk tank water for crude oil drilling in the fourth quarter of 2011. The company estimates the new freight opportunities can increase annual revenues by $40 million.

Quality Distribution Inc., a tank truck carrier, is expanding its Energy Logistics business unit as the company is now hauling crude oil in the Eagle Ford Shale region and has transportation operations in Marcellus Shale. Quality’s Energy Logistics business unit primarily hauls fresh water, disposal water and crude oil. The Energy Logistics business unit, formed in 2011 due to expanding operations, now has revenues of $30.5 million.

Mullen Group Ltd., a Canadian carrier, has been acquiring carriers to increase capacity and service offerings to serve oil companies operating in the oil sands in western Canada. In 2011, the company’s Oilfield Services business unit reported revenues increased 38.9% to $903.8 million (Canadian dollars), and operating income increased 42.2% to $206.5 million. Commercial Motor Vehicle Consulting predicts U.S. carriers will see demands for increased service offerings and capacity within the oil and gas industries grow and meet that need through expanded offerings.

Crude oil prices remain high, so exploration and drilling by the oil industry will continue to expand at strong growth rates in the short term, which implies continual strong growth in demand for transportation services. The steep decrease in natural gas prices will slow the growth rate of gas exploration and drilling in the short term, but long term prospects remain positive.

Commercial Motor Vehicle Consulting publishes the monthly newsletter “Visibility of the Supply Chain” for general freight carriers. To order a copy, contact Chris Brady of CMVC at [email protected] or 516-869-5954.

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