By Peter Galuszka
Hydraulic fracturing for natural gas and oil is creating a new and confusing class of corporate winners and losers in Virginia and elsewhere.
Analysts believe that environmental opposition to expanded pipelines such as Keystone helps railroads by putting more tank cars on rail lines. That could further tax a stressed-out rail system that has led to a slew accidents involving energy shipments such as the derailment, spill, explosion and fire of CSX tank cars cars in Lynchburg this week.
And while energy firms eye new markets for fracked gas that can be turned into Liquefied Natural Gas and exported to other countries, other firms involved in the petroleum sector such as petrochemical firms worry that exports will boost domestic prices for natural gas upon which they rely upon for feedstock for many of their products. That could put them at a big competitive disadvantage in global markets.
Due to the overtaxed oil pipeline transportation and storage system, rail companies are enjoying a boom by shipping tank cars albeit with new dangers as evidenced by the Lynchburg situation. Officials claim the local damage there has been contained and no pollution of drinking water is imminent.
Shipments of petroleum product has recently increased 28 percent to 1.54 million carloads according to Cowen & Co and RailShare.
The biggest players are those closest to the booming western shale oil fields like Bakken in North Dakota. The rail leader is Burlington Northern Sante Fe followed by Union Pacific Corp.
They are followed by Norfolk-based Norfolk Southern and Jacksonville-based CSX. NS saw its petroleum shipments up by 27.5 percent into April while CSX’s share increased even more – by 59 percent for the period.
What this means is that there are a lot more tank cars rumbling through farmlands, forests and downtowns like Lynchburg’s. That city’s fire department reports that within the past year, oil-related traffic has increased by 20 percent through the city. The train involved was actually going below the posted speed limit, according to news accounts.
What the Fossil Fuel gives, it can take away, however. While oil shipments are up, coal shipments are way down, largely because fracking has made gas so cheap that electric utilities are switching to it. That has meant that NS has taken a hit, reporting that its first quarter earnings fell 18 percent.
Much of the oil traffic through Virginia goes to Yorktown where crude is loaded onto barges for shipment to East Coast refineries – a fairly recent turn of events since crude oil from the West and Midwest seldom traveled this far east by rail. Eventually, the Yorktown terminal may be allowed to export U.S. crude. Plans are already afoot to allow Dominion Resources to export LNG from a nearly 40 year-old LNG import facility farther up the Chesapeake Bay at Cove Point, Md. Environmentalists are fighting the project.
So, too, are parts of the petroleum complex. Dow Chemicals has been leading a fight against exporting LNG saying that it will only raise the domestic prices for natural gas – a claim also made by environmentalists. The petrochemical firms want cheap feedstock they use to make plastics and other goods so it helps them with their pricing and profit margins. They also must compete globally against foreign, particularly Asian firms, which may be at a price disadvantage right now because they may pay more for natural gas. If the U.S. helps them with LNG, then, ironically, that also boosts their ability to beat U.S. petrochemical firms.
In other words, fracking puts money in some pockets while taking it away from others – a strange phenomenon in a rapidly changing energy picture.
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