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Boom in U.S. energy industry feeds other businesses, too

Updated: 2013-11-28T04:55:21Z

By KEVIN G. HALL

McClatchy Washington Bureau

— 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 the nation’s railroads, even as much the economy bumps along at a subpar pace.

On land that three decades ago bustled with thousands of steel workers, then lay fallow for years when America’s steel industry went bust, a new business now thrives: Welded Tube USA Inc., a subsidiary of Welded Tube of Canada Corp. In September, the brand new Lackawanna plant started making steel pipes for private companies that drill for natural gas and crude oil.

The U.S. energy boom is giving parts of the nation new and 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 energy boom that is turning the United States into “Saudi America” has benefited businesses far and wide.

Welded Tube plans in its first year to make about 100,000 tons of steel pipe used to push deep below the Earth’s surface in search of oil and natural gas. That’s more than five Eifel Towers annually on a single shift. A second shift is being considered, to start in February, and if the boom continues, plans call for more than tripling output to 350,000 tons, something the owners of the privately held company expect to happen in five years or less.

“We were primarily a non-energy 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 big new gas fields in the United States.

That desire to be close to the underground deposits of energy resources brought Welded Tube to what had once been home to Bethlehem Steel’s giant plant here. The shiny new 110,000-square-foot plant 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 shrub that have overrun the vestiges of a period when steel was king and this was a gritty industrial city.

“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.”

The new abundance of natural gas, in particular, has made electricity cheaper, as more and more local utilities are switching their generating plants from coal to gas to take advantage of the lower costs. That’s made products manufactured in the U.S. more competitive globally, an advantage analysts expect to last for a while as other nations work to catch up with the edge the U.S. holds in the technology that allows horizontal drilling and fracking — hydraulic fracturing — of oil and gas deposits.

The energy boom has also meant jobs 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; preliminary numbers for 2013 through October show that almost 200,000 people now work in the industry, according to the Bureau of Labor Statistics.

The numbers 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 labor bureau said.

Meanwhile, Atlanta-based Colonial Pipeline, the operator of the largest petroleum pipeline in the U.S., is seeking ways to move gasoline into New York and New Jersey, away from its traditional market connecting the U.S. Gulf Coast with most major markets throughout the Southeast, from Nashville, Tenn., and Charlotte, N.C., to Raleigh, N.C., and Richmond, Va.

The energy boom has proved a boon for railroads, which have stepped in to move crude from the new oil-producing states of Montana and North Dakota at a time when building new pipelines faces political and environmental hurdles.

The Burlington Northern & Santa Fe Railway Co. serves all the western locations where oil is being drawn from the Bakken and the Williston formations, which span Montana, North Dakota and Canada’s Saskatchewan province. The BNSF carries about 650,000 barrels of oil per day on its rail network; since a barrel yields about 42 gallons of gasoline, it works out to the equivalent of 27.3 million gallons of gasoline daily.

The major railroads, called Class I carriers, together moved 234,000 carloads of crude oil in 2012, compared with just 9,500 in 2009, according to the Association of American Railroads. They boast a spill rate of 2.2 gallons per million ton miles, the association said, better than the rate of 6.3 per million ton miles of pipeline companies.

Railroads are also moving vast amounts of industrial sand, pushed through the pipes during the fracking process. A single horizontally drilled well uses anywhere from 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, but 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 earlier this year.

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

Investing in the boom

The region around Kansas City has struggled to directly participate in the boom for fossil fuels. Many were optimistic that a trove of natural gas and oil was in a rock formation under much of Kansas, but those hopes have dimmed.

Still, area companies are finding other ways to benefit from the energy boom. Kansas City Southern Railway has seen revenues grow by shipping oil from North Dakota and Canada to Texas, where it is refined.

Cor Energy Investment Trust, based in Leawood, has taken advantage of growing production in natural gas with interests in liquefied natural gas and gas storage facilities in Mississippi.

A year ago it paid $220 million for about 150 miles of pipeline and other facilities in Wyoming that gather natural gas produced in that state.

And Crestwood Midstream Partners, formerly called Inergy Midstream, has its Colt facility in North Dakota to serve that state’s oil industry. The facility has storage for crude oil and a hub for rail cars to load the oil and ship it off to the East and West coasts.

Steve Everly, severly@kcstar.com

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