Oil & Gas Drilling Driving Freight Volumes | Apex Capital Blog

Oil & Gas Drilling Driving Freight Volumes

by Apex Capital | June 7, 2012

Overall volume in the freight market continues to grow at a modest rate, rising 1.9 percent from March to April this year, according to the Cass Freight Shipments Index. That moderate growth rate is similar to the overall increases of 2.1 percent and 2.5 percent in February and March.

Within the overall freight market, however, certain segments including the oil and gas industries are experiencing much stronger rates of growth. The oil and gas exploration sector, for example, increased at a rate that was 7.2 percent higher this February compared with February 2011. Oil and gas exploration’s growth rate was also nearly 20 percent higher than it was in February 2007, according to freight industry statistics.

Likewise, the natural gas extraction segment of the industry rose nearly 18 percent during January and February 2012 compared with the first two months of 2011. That sector’s rate was more than 37 percent higher than the same two months in 2007.

Demand for Transportation Services

Several factors are driving the strong growth rates in the oil and gas sectors. Natural gas exploration is undergoing a major escalation as a direct result of the advances in technology that have led to the development of new natural gas fields. One prominent example of this phenomenon is the natural gas field being developed by Marcellus Shale in Washington County, Pennsylvania. The work at the new fields requires equipment to be delivered to drilling sites. It also requires product and waste materials to be transported away from the drilling sites. The activities help lift freight volume.

The price of crude oil remains elevated around the world, meanwhile, and those high prices continue to stimulate drilling for oil as well as overall oil exploration by industry leaders. This increased activity translates to robust growth in the demand for transportation services provided by businesses aligned with the oil exploration industry.

Newly revamped business plans by several major firms in the freight industry serve to illustrate how oil and gas drilling is invigorating freight volume. The refrigerated hauler Frozen Food Express Industries, for instance, started carrying tank water used in the drilling process in late 2011. This move is projected to lift revenues by as much as $40 million a year for the company.

Even though the recent drop in the price of natural gas is expected to hinder the short-term growth of gas exploration, the outlook remains bright in the long run.

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