Rise in Freight Volume Linked to Oil and Gas Drilling
by Apex Capital | April 18, 2013
Overall freight volume in the trucking industry is experiencing a moderate rise, but certain segments in the energy sector are proving to increase the growth rate disproportionately compared to other segments. Statistics show that a strong demand for energy products does not always translate into an increase in production. However, two energy products that do lead to increased production, and an increased need for hauling, are oil and natural gas.
Demand and Drilling Technology Drive Increased Production
Common sense dictates that an increase in demand leads to an increase in production, but this is not always the case in the energy market. Between February 2011 and February 2012, production from coal mines decreased by 7.7 percent, and from February 2007 to February 2012, it decreased by 13.6 percent. During these same periods, oil extraction increased by 7.2 percent and 19.4 percent, and natural gas extraction increased by 17.8 percent and 37.6 percent, respectively.
The sharp increase in natural gas production occurred because of two factors: an increase in demand and the implementation of new technology in gas exploration. The increase in natural gas fields is largely responsible for the overall rise in freight volumes. When new drilling sites are discovered, equipment and materials must be hauled to the location while gas and waste must be hauled away from the site.
Opportunities for the Trucking Industry
The trucking industry has responded to the new opportunities presented by the oil and natural gas segments. At least one refrigerated carrier company has taken advantage of the demand by contracting with oil companies to deliver the water required for drilling. Analysts at Frozen Food Express Industries estimated that annual revenue will increase by $40 million per year after signing such a contract.
One trucking company, Quality Distribution Inc., recently expanded its unit dedicated to energy logistics by hauling crude oil and disposal water out of the Eagle Ford Shale in Texas and by hauling fresh water into the region. The company formed this unit in 2011, and it brought in $30.5 million in revenue in only one year.
A large and respected trucking company in Canada, Mullen Group Ltd., has been actively acquiring carriers to service its new contracts with companies operating in the oil sands. In 2011, the company’s oilfield services division reported revenue of more than $889 million, which was an increase of 38.9 percent over the previous year.
Because crude oil prices are still on the rise, exploration and drilling is expected to continue at its current rate or expand, which will directly lead to new opportunities for truckers and trucking companies.