PwC report takes a deep dive into impact of shale gas on freight transportation and logistics

It comes as no surprise that shale gas has the potential to play a key role in the domestic freight transportation landscape.

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It comes as no surprise that shale gas has the potential to play a key role in the domestic freight transportation landscape.

One reason for that is obvious: there is a lot of it here in the United States. And consider the fact that going back to 2010, the United States has been the single largest gas producer in the world, coupled with the fact the United States Department of Energy’s Energy Information Administration (EIA) is forecasting that by 2040, 50 percent of the United States’ natural gas supply is expected to come from shale gas, which is expected to have a significant impact on many facets of the freight transportation and logistics sectors.

That impact was fleshed out in a recent report from PwC, entitled Shale Energy: A potential game changer—Implications for the US Transportation & logistics industry.

In the report, PwC US Transportation and Logistics Leader Jonathan Kletzel points out that shale continues to have a major effect on U.S.-based chemical and manufacturing sectors, as “this new source of “abundant low-cost energy provides a significant incentive for chemical producers and manufacturers to shorten their supply chain and bring production facilities back to the United States,” adding that “a revived manufacturing sector would increase the need for rail and trucking to move products domestically and to ship exports abroad.”

The report examined the impact of shale on various modes of freight transportation.

On the rails, it explained that the sector is seeing the positive effects of shale on the U.S. chemical industry, with nearly a quarter of U.S. chemical shipments moving by rail. This has in turn led to increased demand for cars that can transport crude oil, coupled with some railroads in some shale-producing regions building out infrastructure to keep up with demand, Kletzel said. He also noted that rail is also gaining traction because it is 1- cheaper than trucking and 2-more flexible than pipelines.

For truckers, there has been no shortage of talk pertaining to more carriers piloting liquefied natural gas (LNG)-powered vehicles as it is considerably cost-effective compared to diesel. But as LM has reported, it is not cheap to for carriers to do so, because infrastructure support is needed. But things are moving in the right direction, as evidenced by the progress being made by America’s Natural Gas Highway, an effort comprised of about 150 LNG truck fueling stations on interstate highways that are scheduled to be up and running by the end of 2013.

In the report, PwC’s Kletzel said that pipelines could eventually move most shale oil and gas but developing that infrastructure will take time and rail, trucks, and planes will still be playing a large role in moving people and equipment, with ships transporting LNG globally. He also said shale energy will be key in reviving U.S. manufacturing and provide freight transportation and logistics providers with many opportunities triggered by the growth of shale energy.

Even with pipelines looming in the background and expected to play a larger role in the future, Kletzel said that pipelines could be expected to take share in transportation from well sites as they get built, but rail and trucking are likely to keep much of their share of frac sand, pipe, and water transport longer-term. And while a change in regulations may also allow transport of wastewater by barge, non-pipeline volumes in the form of well inputs (frac sand, pipe, water) and output (wastewater) are somewhat more insulated from pipeline substitution.

In terms of how shale extraction and development might spur increased manufacturing activity, Kletzel said that chemicals and other energy-intensive downstream industries like steel benefit from the greater availability and lower cost of shale energy as a feedstock with shale extraction leading to higher demand for equipment like metal pipe and tubes which can benefit metal and industrial manufacturers.

In short, the shale energy movement is here to stay for longer than a little while, and it stands to reason that shippers, specifically manufacturers, chemicals, and metals companies, will continue to see new cost advantages and growth opportunities from domestic production.

Related: Transportation & Logistics Companies Reap the Benefits of U.S. Shale Gas Boom, Says PwC US


About the Author

Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman

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