U.S. oil boom driving a surge in trucking

An increasing number of well is leading to more truckloads of oil products being transported. 

An increasing number of well is leading to more truckloads of oil products being transported. 

Record oil production is adding millions of miles for carriers hauling oil products

Have you ever heard anyone complain about low fuel prices? That rarely happens, of course, but low fuel prices do have an impact on transportation, trucking in particular. Lower diesel fuel prices drive down costs for carriers, and they often lead to an increase in economic activity.

But what really forces fuel prices down, and how does that actually help trucking? Low fuel prices are usually product of oil market supply and demand. Sometimes, political forces can play a role as well. Regardless, the result is a series of related events that affect transportation companies that work in the oil fields.

Generally, low prices occur during times of low demand or oversupply. In the most recent case, it is a supply push by U.S. companies that is helping drive down prices worldwide but is driving up transportation-related revenue.

The U.S. is now pumping more oil than ever before, according to Baker Hughes, which tracks oil rig count. According to the company, the U.S. now has 712 operating oil rigs. Each rig added can add thousands of truckloads of product to the industry. Even as OPEC nations curtail production to try and drive up prices, the U.S., thanks in large part to hydraulic fracking, continues to increase its production levels.

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This has an impact on a number of trucking industry segments, Jared Flinn, operating partner of Bulkloads, told FreightWaves in a recent conversation. Bulkloads is a freight board for bulk products. Flinn says that during the oil boom preceding 2014, more agricultural haulers shifted over to hauling oil products because the rates were better. This drove up ag hauling prices.

“For the longest time, there were a lot of the agricultural haulers who moved to the oil and gas fields [because rates were better],” Flinn says. “After 2014 [and the oil and gas industry collapse], the ag haulers came back and created oversupply [of capacity].”

That has since started to reverse itself once again, balancing out the markets, as the U.S. oil business is booming once again. The recent surge is being driven by changes in operations forced upon the industry during the past decline, reports Sam Tibbs.

“From 2009 to 2014, horizontal drilling and hydraulic fracturing activity increased substantially, unlocking value from the formerly uneconomical shale basins [and] growing the U.S. into the world’s top oil producer,” he writes. “This activity declined dramatically in November 2014 when OPEC, led by Saudi Arabia, greatly increased its oil production to substantially lower oil prices with the intent of bankrupting the shale drillers with their high-cost structure relative to OPEC producers.”

The result was defaults on over $85 billion in debt and more than 200 oil and gas company bankruptcies, he says. That, though, led to a resurgence of U.S. capabilities.

“The large decline in oil price forced oil and gas drillers to modify their operations to function more efficiently and to be more productive,” Tibbs notes. “The dramatic improvements in cost structure reduced the average break-even price for shale oil producers from about $75 to $50 per barrel of oil. When OPEC announced the first production cuts in eight years in November 2016, this allowed U.S. producers to expand again using their lower break-even price combined with their shorter production lead times relative to conventional oil and gas projects.”

The boom in oil drilling is also leading to an increased number of flatbed loads moving equipment between sites.

The boom in oil drilling is also leading to an increased number of flatbed loads moving equipment between sites.

Tibbs goes on to note that using a 2-rig, 8-well design as a base, “there will be [between] 5,850 to 8,905 truckloads of equipment, drilling fluids, sand, water, etc.” based on estimates from an MIT study, The Future of Natural Gas (2011).

He further notes that horizontal drilling with hydraulic fracturing is especially dependent on truck transportation. Based on the Dept. of Transportation’s commercial freight distance for several commodities, Tibbs estimates that adding a 2-rig, 8-well design could add about 365,000 trucking miles.

Tibbs notes that length of haul for oil operations is unavailable from government data, but using data from other resources allows a best guess on the transport miles.

“There is information to support the estimates, such as from Pioneer Resource, located in the Permian Basin, which states their sand mine is ‘strategically located within close proximity (about 190 miles) of the Spraberry/Wolfcamp field,’” Tibbs writes. “So, if 190 miles is considered strategically close, then using 190 miles plus 20% extra for the average well doesn’t seem unreasonable for truckloads of sand.

Oil boom graphic

Inside the oil boom

The U.S. is producing more oil than ever before and for the trucking industry, that has meant a big boost in volumes, not just in fuel deliveries, but also equipment being hauled to and from the oil fields.

“Another example is the fact that due to regulatory constraints and geology, Marcellus producers wishing to use disposal wells to inject flowback water commonly need to travel long distances to other states (commonly Ohio),” he adds. “However, if transport costs are too high, then building a local water treatment facility becomes a viable option, therefore an estimate of only 50 miles is used for each flowback water truckload.”

So, how much is the current oil boom adding to the transport industry? The numbers are staggering, according to Tibbs estimates.

“Over the next 12 months at the current rig count, assuming 2 rigs spending 60 days at each well site, there would be conservatively 932 million miles traveled and every additional 100 drilling rigs adds an estimated 109 million miles,” he says. “Certainly a meaningful amount, especially given the current driver deficit.”

“Next consider the substantial increase in land rigs over the past 12 months, up 116% to 853, but substantially less than the peak of 1,876 rigs when OPEC increased supply in November 2014,” Tibbs adds. “If oil prices are greater than $55 per barrel then expect continued expansion.”

Crude oil prices climbed more than 3% on Monday following an announcement by Russia and Saudi Arabia that current OPEC oil production cuts should be extended for another nine months. On the New York Mercantile Exchange, June West Texas Intermediate crude was at $49.29 a barrel.

Tibbs is estimating that current growth in drilling will continue and along with that, trucking demand will continue.

“Saudi Arabia needs oil prices greater than $70 per barrel to balance their budget, but above $50 shale is profitable,” he says. “My best guess, given current demand conditions, is somewhere in the middle.”