Oil prices are important because they determine the success of any given project. As investment decisions and development (and even re-development) projects are undertaken, there is a certain price point that makes any upstream project commercial. Everything over that is just icing on the cake.
Beyond the oil field, the price at the pump can affect demand, as well. American families drive less when gasoline reaches about $4 a gallon, but some consumers cannot afford to simply drive less.
The North American trucking industry is dependent on the oil and gas industry, from upstream to midstream to downstream and marketing. I got a chance to chat with Charles Wilson, the editor of Bulk Transporter, a trade publication that covers the tank truck and storage terminal operations in the US and Canada, about his take on the relationship between our industries.
The implications of increased domestic production are very present in the trucking industry. More oil and gas will help keep prices down, and that will help to keep the North American trucker profitable.
"The number one top question for the trucking industry is: What will diesel cost in coming years?" Wilson revealed.
He explained that trucking fleets are not as concerned with availability, but that the cost of fuel is paramount.
"North America is pretty much awash in diesel," Wilson said. "Fleets are reluctant to consider a switch to different fuels that are not comparable to diesel. Biodiesel is seen as transparent. Natural gas can be used in a diesel engine with relatively minimal modification. It all comes down to cost of the fuel."
While the trucking industry will be required to comply with new EPA regulations starting in 2014 that will call for a reduction in fuel consumption by up to 20 percent, the new trucks will cost more, which simply adds to the industry’s focus on fuel prices moving forward.
"How can the oil and gas industry help?" Wilson said. "Find more domestic supply that will help hold down prices and ensure adequate supply."
With an abundance of natural gas from prolific shale gas developments across North America, natural gas may prove to be the answer -- or at least one of them.
Various projects are under way to build natural gas and LNG fueling stations, and South American petrochemical company Sasol (NYSE:SSL) has just announced that it is looking to build a gas-to-liquids (GTL) plant in Louisiana based on its proprietary technology.
"Natural gas and GTL both hold considerable promise for trucking," Wilson said. "These fuels would make it much easier to meet the GHG reductions. LNG and CNG also are attractive because they offer the potential for much lower fuel costs, which would boost ROI for truck fleets."
While natural gas fleets require a costly upgrade to trucks, the GTL fuel can be distributed using existing infrastructure and used in existing engines.
"We see considerable interest in natural gas
among tank truck fleets," Wilson said. "They like the fact that natural gas costs at
least the price of diesel on a per-gallon basis, and they see natural gas
as a potential cargo, since it will be distributed outside the existing
pipeline infrastructure in many parts of the country. LNG probably holds the
biggest potential as a cargo for the future."
The oil and gas industry is diligently working to increase domestic production and improve distribution (think Keystone XL pipeline). From the deepwaters of the Gulf of Mexico to Canada's oil sands, from oil shale developments to the potential offshore the East Coast, oil and gas abounds in North America. Now the question is: Will we be able to tap it?
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Phaedra Friend Troy is the content director for PennEnergy.com, an all-energy website that provides oil and gas, power and infrastructure news, analysis, reports and more. Sign up for a free daily enewsletter today.
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