By Patrice Powers, Customer Operations & Government & Industry Relations Leader, GE Capital, Rail Services The recent shale revolution has brought about a powerful transformation in the country’s economic profile; creating jobs, driving new prosperity and also bringing us closer to true energy independence. In 2009, the United States became the world’s No. 1 producer of natural gas, overtaking Russia’s longstanding dominance. Moreover, we’re on schedule to exceed Saudi Arabia’s production of oil by 2020, according to projections by the International Energy Agency. Production of oil and natural gas from North American shale formations is so abundant that it is creating an urgency to update distribution chains, and the transportation infrastructure is quickly changing to add capacity to meet this need. The Interaction of Shale & Rail The Association of American Railroads (AAR) reported that the quantity of crude oil shipped on the seven Class 1 railroads in the United States (those with annual operating revenues of over $433.2 million) has increased dramatically—from 9,500 carloads in 2008 to approximately 400,000 carloads in 2013. According to Forbes, the rail takeaway capacity in North Dakota’s Bakken Shale has multiplied nine-fold since 2011. In the Eagle Ford shale formation, four large rail terminals have opened within the past two years. On Track for Energy Self Sufficiency There are several shale plays, or formations, in North America that are experiencing stunning growth, but none are expanding so rapidly as the Eagle Ford Shale in Texas and Oklahoma. With more than 200 rigs in operation and yields of over 1 million barrels of crude oil per day, it is the most active shale play in the world and ranks as the world’s leading oil and gas development in terms of capital invested. The boom in energy production is driven by more than oil, however. Natural gas production is increasing, and according to a recent report by the Deloitte Center for Energy Solutions, the low U.S. prices are driving a potential new export market. The Expanded Supply Chain: Touching Many Industries The new availability of shale gas has been a factor in the announcement of 97 new projects in the chemical industry, collectively worth $72 billion. Rail transport is crucial to the chemical industry, shipping one quarter of the nation’s chemical products. As new factories are built, this percentage is expected to increase. Eight new propylene plants are underway, as manufacturers like Dow are finding it economically beneficial to locate factories in the United States. Pennsylvania’s steel industry is suddenly reviving, thanks to the affordability of fuel, and this pumps revenue into local infrastructure through various channels. Chains of fueling stations are being built across the country to provide trucks with natural gas in either compressed or liquid form. By the end of 2014, UPS reports that it will have converted 800 of its heavy 18 wheel trucks to run on LNG, because it’s cheaper and cleaner than diesel. Additionally, GE Transportation and CSX are partnering in a program to explore the use of LNG in locomotives. The increased amount of hydraulic fracturing leads to corresponding increases in the demand for silica sand, mined from deposits such as those in Wisconsin, where the Department of Natural Resources reports that 20 new mining operations are in the proposal stage. While this sand is typically trucked from mines to the processing plant, 90 percent of it is carried to the hydraulic fracturing site by small (2,700 to 3,500 cubic feet) covered hopper rail cars. The remainder of the sand is transported in larger covered hoppers (4,600 to 4,750 cubic feet). Given these hoppers are used for other materials, its anticipated new projects will increase demand. Higher Industry Standard for Rail North America has a fleet of about 92,000 tank cars that are currently used to transport flammable liquids, including oil, and were constructed in compliance with existing federal regulations. Currently, the U.S. and Canadian governments are considering new rules to govern the expanding transportation of crude oil and other flammable liquids, with input from railroads, industry associations and customer advocacy groups. GE Capital, Rail Services advocates a three-pronged approach to the issue of safety: 1. Railroad operational enhancements: For example, in late February 2014, the eight major railroads joined the U.S. Department of Transportation to put into effect new voluntary operational safety measures including lower speed limits, increased track inspection, new braking technology, and the use of new technology for routing rail traffic. 2. Commodity testing: Regulators are exploring the feasibility of new testing protocols to determine the volatility of fuel before it is moved onto the tracks, to ensure that each shipment receives the appropriate classification. 3. Tank car redesign: The Railway Supply Institute Committee on Tank Cars (RSI-CTC) has developed a comprehensive proposal to enhance the safety of legacy tank cars, newly constructed tank cars (built after October 1, 2011), tank cars in the manufacturers’ backlog and tank cars to be built in the future. These recommendations include substantial retrofits of the legacy cars with jackets, thermal protection and full height head shields. Sparking an Economic Renaissance The Wall Street Journal recently called the new boom in shale energy “one of the biggest forces to hit the U.S. economy in modern history.” Assembling an effective supply chain for shale oil, as well as for other products such as LNG, and drilling components like silica sand and water are all driving growth across numerous industries. As the United States moves toward a realistic goal of energy independence, the abundance of inexpensive oil and gas products will move our economy forward. By producing energy locally, energy dollars that previously went overseas are now staying here in the U.S. Furthermore, the number of jobs created by this shale oil revolution is expanding rapidly, and the economic effects are felt across many different industries. Eagle Ford Shale.com estimates that in the 20-county area of Texas affected by their play, oil and gas development has supported over 116,000 jobs. In the Bakken, average weekly earnings are more than 33 percent higher than the national average. These jobs are not found only at drilling sites; as workers flock to these plays, new housing needs to be constructed, and the hotel and motel industries are booming. All types of food services are expanding to meet the needs of these crowds of new workers, and as families move and settle in, jobs in healthcare and education are following. The Economist quotes a study by McKinsey consultants which estimates that by 2020 up to 1.7 million jobs overall will be created by this unconventional-energy boom. As The Economist headline states, “The benefits of shale oil are bigger than many Americans realize.”