As energy investors, fracking has to be one of the things we’re thankful for this holiday season. As it sweeps through the nation, it’s bringing great cheer to local economies.
And t’is the season to celebrate the profits to be made from all parts of fracking – from the sand, water, and chemicals it uses to the pipelines that carry its product away.
Hydraulic fracturing, or fracking, as it is commonly known, is the drilling method that uses huge amounts of high-pressure chemical-infused water with sand to free oil and natural gas deep within shale rocks beneath the earth’s surface.
It often gets a bad rap, but truth be told, fracking is safer and more eco-friendly than ever before. Fracking as a whole continues to improve, and so too does the state of gas and oil production in the U.S.
That production – especially of natural gas (really, really cheap natural gas) – has ignited a renaissance in manufacturing as companies are turning to natural gas for the energy they need. Prices that were once $12 per thousand cubic feet back in 2008 are now between $3 and $4.
Naturally, this rise in demand requires fracking industries to be firing on all cylinders.
Sand
If we zero in on companies like U.S. Silica Holdings Inc. (NYSE: SLCA) – based out of Frederick, Maryland – we’ll see that the sand they supply is going through a mini boom of its own. Without sand, there’s no fracking. It’s that simple.
Energy companies are expected to use 56.3 billion pounds of sand this year, and as I’m sure you can guess, it will all be used for fracking. The use of sand by these companies has already increased 25 percent since 2011, according to grist.org, and it’s supposed to rise another 20 percent in the next two years.
While there are places like Frederick, Maryland that are seeing a boost from these companies, the epicenter of this industry is found in Wisconsin. Wisconsin has become so vital because of its rail capacity for shipping sand.
From there, the sand is sent to rigs, where it is used for fracking. Once the high-pressure fluid is shot into the shale rock, it is the sand that flows into the newly formed fractures in the rock, props them open, and allows the dislodged gas and/or oil to seep out and be collected.
Chemicals
Perhaps the only thing growing even faster than sand is the chemical industry. This sector of fracking is using natural gas to make materials that are becoming components in almost everything we use today.
Billions of dollars are being spent to expand this industry here in the U.S.
The way it works: oil and gas are heated to 2,000 degrees Fahrenheit in a furnace where they turn to ethylene, a main ingredient in most plastics. The ethylene then is used for virtually anything you can think of that’s made of plastic.
Companies like BASF (OTC: BASFY) used to use only oil to make their ethylene, but now they’re using natural gas as well. It’s so cheap!
And now the U.S. is one of the most economical places in the world to make plastic. This is why the industry is growing so fast, putting up plants and looking to expand by as much as 40 percent in the next few years.
The only downside here is that with more plastic comes more pollution. But even that is improving all the time as production plants find ways to burn cleaner.
Water
In rounding out the three main ingredients found in fracking, we’re left with water – millions of gallons of which are used in fracking operations each year.
Because so much water is necessary, some worry that we can’t afford to lose our fresh water to fracking. But drillers are coming up with a solution.
Fracking, which requires relatively clean water, also leaves about 20 percent behind – though this water is contaminated with chemicals and other heavy metals it picks up along the way. Until very recently, that water, or waste, would be dumped – often into injection wells deep underground.
Now, instead of wasting millions of gallons of water, it’s recycled! There are different technologies and methods, but the main takeaway is that water is being reused, not just used up.
One company, Water Rescue Services, statically charges water to separate particles of waste from the water. The waste is then sent to a local landfill. As for the water, 95 percent is clean enough to be reused for fracking. Companies that are using this service, like Fasken Oil and Ranch in West Texas, claim that they are 90 percent toward their goal of not using freshwater for fracking at all.
This system and others are working towards using zero freshwater and also eliminating wastewater at a time when the industry requires more water than ever. Pure Stream, for example, claims that its water is clean enough to be dumped back into rivers and lakes or used in agriculture. Interest in its technology has doubled in this year alone.
Eventually, every well that gets fracked will also recycle the water it uses to do so.
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Pipelines
Now we just have to figure out what to do with all the oil and natural gas that fracking produces.
Put the Keystone XL pipeline to bed. It hasn’t happened yet, and who knows when or even if it will. But we do have the Cochin – Kinder Morgan’s (NYSE: KMI) 1,900-mile proposed pipeline that will transport gas and oil from Texas’ Eagle Ford to Alberta, Canada, where tar sands diluted bitumen will then make its way south to the Gulf Coast.
There is huge demand for the diluent that is produced in Alberta’s tar sands, so U.S. producers are in a growing market – especially those who are fracking.
And while the Cochin will add 95,000 barrels of condensate per day, the Canadian-U.S. pipeline will be paramount to total U.S. exports of gasoline and natural gas. Natural gas exports alone reached 179,000 barrels per day in February.
This pipeline project was approved by the U.S. State Department on November 19.
Playing It
Looking around, you could throw darts at any one of these industries, and you’ll turn up a winner. The U.S. and its fracking revolution is on fire. They will all play a key role.
More, more, MORE. That’s the theme here.
We should remain optimistic no matter what direction we decide to turn in the fracking landscape. Eat, drink, and be merry this holiday season.
Cheers!
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