Railroads Ready for Utica Shale Midstream Hauling
YOUNGSTOWN, Ohio – Executives of national and regional railroad companies say they have a role to play as oil and gas companies develop the Utica shale in Eastern Ohio.
Many of these big energy companies that have entered the region are still trying to define the play and are just beginning to map and build the pipelines needed to take their products to markets across the country.
Meantime, railroads have a robust infrastructure in place and are ready to handle the heavy loads of materials and products to and from the well sites, executives say.
"We've got a pretty good network in the Utica, from Youngstown to the Ohio River," said Ryan Fischer, assistant vice president, emerging markets, Genesee & Wyoming Inc., one of the largest regional/short-line railroads in the United States.
Piping networks don’t appear overnight, and building a midstream infrastructure calls for billions of dollars of investments over years from oil and gas companies. Without pipelines, these companies have to find other ways to transport their gas -- especially liquid natural gas and oil -- to refineries and processing centers.
Fischer was among five panelists who discussed the logistics involved related to oil and gas exploration in the Utica shale as part of the Youngstown-Warren Regional Chamber's Youngstown Ohio Utica and Natural Gas 2012, or Young 2012, conference. The second day of the conference, Sept. 7, at the Holiday Inn-Boardman, heard from panelists from various disciplines in the industry who addressed challenges and opportunities.
Demand for logistics in the Utica shale, Fischer said, leaves ample opportunities for both the rail and the trucking industries to transport materials and products.
"We think there's a place for what we do and a place for what they do," he told an audience of 100.
Fischer said most of the midstream business would come from fractionation and processing plants, such as Chesapeake Midstream's partnership with M3 Midstream, to invest $900 million on two such plants in the Utica shale region connected with a large-diameter transfer pipe.
"That's going to be where the action really is," he said. "It's a home run for us."
Most of the products shipped out of the V&M Star mill in Youngstown are moved via rail, reported Dan Mihalik, eastern regional sales manager for V&M Star.
The company is in the final phases of constructing a $650 million pipe mill at the site, which required extensive upgrades to the rail line there. "We see our rail activity to continue to increase as a result of our new capacity coming online," Mihalik said.
Short line railroads work hand-in-hand with Class I railroads to transport products across the country, added Chris Ingraham, industrial development manager of Norfolk Southern.
Much of the business with the oil and gas industry at the moment is associated with the "upstream," not midstream, markets of drilling and development, he clarified. That means larger carriers such as Norfolk Southern are grabbing most of their business by supplying large volumes materials used to drill for and extract oil and gas from below the earth.
Large volumes of sand and water used in the hydraulic fracturing process, for example, need to be transported to these sites from areas throughout the United States, Ingraham said. And, the railroads are well equipped to handle hazardous materials because of stringent regulations they adhere to.
"We're well-positioned to handle all types of commodities as it pertains to the development of the midstream market," he said. "This market is really nimble. A lot of people want to move and change as the market changes."
And, Ingraham noted, increased truck traffic is taking a toll on roads throughout the Utica and Marcellus shale regions. "A lot of these roads are not made for heavy truck infrastructure at all," he said, adding that energy companies have spent some $400 million to accommodate the heavy volumes of traffic.
"We've tried to tell people that where possible, try to ship as much as you can by rail," he said. "You can take advantage of rail shipments instead of busting up some of the infrastructure."
Scott Hallam, manager development operations at Chesapeake Midstream Development, said that multimodal logistics are critical to energy companies that need to carry these products to refineries and petrochemical processors.
Ultimately, the goal for companies such as Chesapeake is to transmit and transfer their products via pipelines from well sites to these processors, Hallam said.
The $900 million midstream processing system under development, which Chesapeake announced in March, calls for a cryogenic plant in Kensington in Columbiana County that essentially chills the gas and separates the liquids from the dry gas. The liquid gas will then be sent via a large pipeline to a fractionation plant in Harrison County, which he described as a "city of steel."
And, much of the drilling equipment is placed on skids, providing oil and gas exploration companies with the flexibility to move rigs to accommodate the market, Hallam said. "We want to put everything above ground and on skids so that we’re nimble and able to move our equipment and our fleet," he said. "This provides a logistic opportunity" for companies in that industry.
Much of the logistics during the construction phase would be coordinated by over-the-road services, Hallam said. All of the pipelines must be hydrostatically tested, which requires moving water to and from the locations. "Both of these present over-the-road and rail opportunities," he said.
To ensure a working infrastructure, companies such as Chesapeake have secured roadway use agreements with many of the municipalities or counties where they're drilling, Hallam reported. "We've been very successful in Ohio," he reported.
The need to move water and oil from the well sites presents a strong opportunity for trucking firms, he said, while transportation of high volumes of liquid gases such as ethane, propane and butane, for example, opens up a huge market for rail companies.
"We're just very excited about this project," Hallam said.
Copyright 2012 The Business Journal, Youngstown, Ohio.
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