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The Next Big Sector in Natural Gas

The Infrastructure Boom

Written by Justin Williams
Posted December 20, 2013 at 1:07PM

The U.S. is sitting in the middle of a natural gas revolution, with technology like hydraulic fracturing and horizontal drilling going faster and deeper than ever before, but now we’ve got a big problem on our hands: infrastructure. It’s becoming impossible to keep up with the amount of output we’re seeing.

natural gas flaringCompanies are working double time to try and keep up, but we still need to see hundreds of billions of dollars pumped into the industry as the demand for natural gas grows every day.

The infrastructure we need is at every single level – pipelines, storage facilities, all the way down to bit parts used for construction. Even existing pipelines will need complete overhauls and to be reversed, since they weren’t built to handle the overwhelming load in the first place.

Bottom line is that the growth we’re experiencing here in the states is greater than anyone expected. Pipelines and processing facilities have already increased by 35 percent, but this will have to double and then some. And everything else has to follow.

Flaring

While this happens, there is the ongoing battle over fracking, even if the technology has been employed in drilling efforts since way back in the 1940s, when it started in Kansas.

But what should probably be getting more attention from environmentalists is flaring. With so much supply, the most wasteful and harmful byproduct of our American gas boom is flaring.

When there are too few gas lines to collect what is produced, the excess gas is burned off, or flared, into the atmosphere, contributing about six million tons of carbon dioxide each year, or enough fuel to heat a million U.S. homes.

And if we zero in on the Bakken in North Dakota, a view from outer space will show that the 1,500 or so flare stacks that burn off each producing well are more brightly visible than the city of Minneapolis, hundreds of miles away.

The level of emissions is only intensifying as production ramps up, so it is imperative to create tighter regulations and find ways to reverse this trend.

Thankfully, things are being done. More pipelines and processing facilities are a start, natural gas is starting to be used as a feedstock for fertilizer, and the actual rigs themselves where flaring takes place are beginning to incorporate natural gas as a fuel.

If rigs in the Bakken could even partly run on natural gas, that would eliminate about one fifth of the gas that is flared every day.

Statoil (NYSE: STO) and General Electric (NYSE: GE) have teamed up and are working on a prototype in North Dakota’s McKenzie County, where flared gas can be gathered and used for cooking and other things.

Their hope is that the prototype will eventually be used around the world, where flaring is becoming an increasing problem. Remember, this isn’t just a North Dakota or U.S. problem, this is a global problem. It’s China, Nigeria, and everywhere that is seeing production take off.

Natural gas flaring around the world results in 400 million tons of carbon dioxide each year, or the equivalent of the emissions of 77 million cars, according to The New York Times. A lot of the gas that gets wasted could eventually provide power to people who live without electricity.

Another big help would be found on the railroads. BNSF of Berkshire Hathaway (NYSE: BRK-A) is testing North Dakota’s natural gas on fuel for its locomotives – much more cost effective than the diesel it uses now.

The Investment

If we look at the shale boom and all the different directions we could turn when addressing infrastructure, we can see up-sides to almost all of them.

Sure sure, pipeline companies like Tenaris (NYSE: TS) and National Oilwell Varco (NYSE: NOV) are sitting pretty, but what about chemical giants like Dow (NYSE: DOW) and smaller ones like Twin Disc (NASDAQ: TWIN), which sell compressors to push the gas through the pipelines?

Roughly $5.7 billion a year, or more than $140 billion total, will be spent in this industry through 2035, according to Forbes. Small companies like Twin Disc can be a gamble, but they could also pay off big time with the right moves. Quanta Services (NYSE: PWR) is another one to watch, with revenues up 13 percent in the first half of 2013.

And we can’t forget utility companies like National Fuel Gas (NYSE: NFG), the Buffalo, N.Y. gas utility that owns 775,000 acres in the Marcellus shale. It is rapidly exploring and building pipelines as well.

Engineering firms like KBR (NYSE: KBR) and Fluor (NYSE: FLR) will also be appealing. And companies that build LNG terminals have seen shares steadily rise.

A lot is being shaken up right now, but it’s also just heating up.

 

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