Analyst: Fracking Will Reshape Economy, Transportation

| Apr 14, 2014 11:52AM EDT

TUCSON, Ariz. — Booming U.S. oil and natural gas production is “one of the most underappreciated megatrends,” one that promises not only to reshape the global economy but also to give railroads and trucking companies a cheaper way to move freight, a senior equity research analyst said on April 12.

Donald Broughton, chief market analyst at Avondale Partners, expects domestic crude oil production within five years to exceed peak production levels reached in the late 1960s and early 1970s. With diesel prices high and natural gas prices forecast to stay low, more trucking companies will join UPS, FedEx, Schneider and Swift Transportation in adopting the latter as a fuel source, he said at a Transportation Intermediaries Association conference in Tucson, Ariz.

FedEx founder and CEO Frederick Smith said earlier this year that he expects 30 percent of the parcel giant’s fleet to be powered by natural gas within the next decade. Several Class I railroads, including Canadian National Railway and Norfolk Southern Railway, are testing natural gas-powered locomotives.

The growth of hydraulic fracking “is the biggest economic event perhaps in the last 50 years,” Broughton said. “It is going to revolutionize the energy business. It’s going to revolutionize America’s place … and North America’s place in world history.”

Through the process of pumping of water and chemicals underground to release oil and natural gas, U.S. supply of crude oil in the last five years has increased 35 percent, and as a result, global supply has risen 11 percent. U.S natural gas supply rose 38 percent in the same period, while global supply expanded 47 percent.

China has the largest supply of natural gas, with 1,114 trillion cubic feet of the energy source. But China like the rest of the world doesn’t know how to extract the natural gas, providing American companies an opportunity to bring the gas out, a move that could reshape relations between the two countries, Broughton said. The U.S. has about 666 trillion of cubic feet of natural gas, Canada has 573 trillion cubic feet and Mexico has 546 trillion cubic feet.

“We have figured out how to do fracking. We have the technology and no one else has,” Broughton said. “The Germans are trying to figure it out. They are failing.”

He said more rigs are drilling and through steady innovation companies are pulling more oil and natural gas out of the ground per extraction point. As natural gas prices are so low, drillers are focusing on pulling out crude oil, with natural gas being extracted as a secondary benefit.

Broughton dismissed environmentalists’ concerns that fracking could poison aquifers, saying critics “don’t understand the process” and performed “poorly in high school science.” The extracted crude oil and natural gas are thousands of feet below aquifers, and the pipes are protected by steel and cement. Environmental concerns aside, drillers have a stake in keeping water out of the pipes, as that would sully the crude oil and natural gas they are pulling out, he said.

Contact Mark Szakonyi at mszakonyi@joc.com and follow him on Twitter: @szakonyi_joc.