CED

November 2014

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30 | www.cedmag.com | Construction Equipment Distribution | November 2014 Sector Check shows Texas will continue to dominate all other states in terms of its uncon- ventional oil and gas output through 2025, but it's CAGR (1.7%) is below the average for all producing states. Indirect Upstream Impacts In addition to benefiting from the activities of the oil companies them- selves, construction equipment dealers and rental companies benefit from upstream investments in construction equipment among frac sand produc- ers, cement producers and aggregates and ready mix companies, all of whose products are used in the fracking process. Cement is used to line wells, while frac sand is mixed in a slurry of water and chemicals, then pumped beneath the earth to crack open dense rocks so oil and gas can escape. As companies progress in their methods for horizontal mining, they have found success using more sand to generate increased oil and gas production, further driving up demand. Course sand ideal for fracking typically comes from Wisconsin and Minnesota and companies such as Superior Silica Sands have jumped on the opportunity. With new plants coming online in Wisconsin, Rick Shearer, president and CEO of the Texas-based company says his company is currently the fourth leading producer of frac sand and expects to be No. 1 by spring of 2015. Production will go from 4.4 million tons to 9.4 million tons per year. Superior Silica Sands built their first plant in Wisconsin in 2011, and will have four plants operating by next year. The company employs 480 work- ers (full time and contract) and with an operating budget of $130 million a year, they are making a positive impact in the community. "We hire local people exclusively," said Shearer. He says the community has been very supportive. "When we built our Barren plant we worked with CN railroad to rehab 38 miles of track to get to our plant. That track is a wonderful selling tool to attract other businesses." Total employment (in construction, sand and gravel, and mining) supported by the unconventional oil and natural gas is projected to increase from 28,000 workers in 2012 to nearly 50,000 workers in 2025. Gross output in Construction Sand, and Gravel Mining is expected to increase at a compound annual rate of 4 percent, going from $6 billion in 2012 to more than $10 billion in 2025. Indirect Midstream Impacts Midstream activities in the unconven- tional oil and gas market center around distribution of the oil and gas via truck, rail and pipelines. Construction equipment dealers provide equipment used in railroad construction, pipeline construction, as well as the engines, power systems and pumps needed to pump the oil and gas. According to IHS, construction of pipelines, rail, marine construction, storage facilities, LNG export facili- ties, and manufacturing structures are expected to decline later in the forecast period, as necessary struc- tures are completed. In 2015, output for these activities is $20 billion and declines to $15.9 billion in 2025. Pipeline Construction and Challenges In March 2014, the Interstate Natural Gas Association of America (INGAA) Foundation research report estimated that the U.S. and Canada will require each year through 2035 an aver- age of 850 miles of new natural gas transmission mainlines, 800 miles of new laterals to and from power plants, processing facilities and storage fields, and almost 14,000 miles of new gas-gathering lines to bring new gas supplies to growing markets. In a recent interview with Oil and Gas Journal, Alan Armstrong, president and CEO of Williams Co., a large energy infrastructure company, cited regulation as an industry challenge. "It is much more difficult right now than it's ever been, by far," said Armstrong . "The challenge lies mostly in the lack of jurisdictional certainty. Even jurisdic- tions that are supposed to respect [the U.S. Federal Energy Regulatory Commis- sion's] authority don't, which makes it pretty difficult for long-haul pipelines." While Williams acknowledged the maturity of supply infrastructure development, he believes derivative infrastructure is "the next [wave]." This includes building out to the power plants, methanol plants and LPG export sites. The delays in permitting for pipelines ("Shale Gale Spreads Equipment Opportunity" continued from page 29) (continued on page 32) U.S. Unconventional Energy Supply Chain: Gross Output 2014 2025 Wholesale Machinery & Equipment Construction, Mining and Forestry (NAICS: 4238) $3,459,000,000 $4,857,000,000 Machinery and Equipment Rental and Leasing (NAICS:532412) $ 1,635,000,000 $2,378,000,000 Total $5,094,000,000 $7,235,000,000 Supplemental Construction Expenditure And Employment Impacts By Type ($2012M) Supplemental construction expenditure and employment impacts by type ($2012M) 2014 2025 Commercial $873 $479 Industrial $34 $12 Infrastructure $158 $36 Residential $2,897 $3,040 Total $3,962 $3,567

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