For the past few years, various experts have predicted that the boom in American production of natural gas and oil from the fracking revolution would cause economic growth and wealth creation in other areas of the American economy. Those predictions are now proving to be correct. Two industries which have benefited greatly in recently years from the fracking revolution are the chemical industry and the railroad industry.
Just a few short years ago, many U.S. petrochemical manufacturers were struggling to survive in a market where they were caught between high raw material costs and low sales prices. Larger, integrated chemical companies (such as Dow Chemical) were moving to jettison their commodity chemical businesses in favor of less volatile and less cost-driven specialty chemical product lines.
Today, however, many commodity chemical producers are experiencing record-breaking profits, driven in large part by low raw material costs. Because the primary raw material feedstocks for petrochemical products are natural gas and natural gas liquids (chiefly, ethane), these companies have benefited greatly from the tremendous increase in natural gas and natural gas liquid production brought on by the fracking revolution. The stock prices of petrochemical producers, such as Westlake Chemical and LyondellBassell Industries have increased at rates far in excess of those of the general U.S. stock market in recent years.
THESE COMPANIES HAVE BENEFITED GREATLY FROM THE TREMENDOUS INCREASE IN NATURAL GAS AND NATURAL GAS LIQUID PRODUCTION BROUGHT ON BY THE FRACKING REVOLUTION
Aside from producers of commodity petrochemicals, other chemical companies are also benefitting from the availability of cheaper raw materials (principally, those produced by the commodity chemical producers). This trend is substantially increasing the competitiveness of U.S. specialty chemical producers across a great swath of the chemical industry.
The railroad industry has also benefitted tremendously from the increase in production caused by the fracking revolution. Railroads such as Burlington Northern have benefitted from the lack of available pipeline capacity by providing transportation for products produced by oil and gas exploration companies. Some railroads are also now beginning to consider converting their locomotive fleets to natural gas/compressed natural gas fuel in order to reduce operating costs, another potential benefit.
Meanwhile, companies that manufacture, lease and maintain rail cars – in particular, tank cars – and rail car components have experienced strong demand for their products and services. These companies should see even stronger demand going forward, as concern over the safety of transporting oil and chemical products by railcar is predicted to lead to new federal regulations which will require the replacing or upgrading of many current tank cars. Among the beneficiaries of these trends are Trinity Industries, Union Tank Car Company, American Rail Car Industries and ACF Industries.
SOME OF THE MOST WELL-KNOWN AND SAVVIEST INVESTORS IN THE U.S. HAVE MADE SUBSTANTIAL INVESTMENTS IN THESE INDUSTRIES
Perhaps unsurprisingly, some of the most well-known and savviest investors in the U.S. have made substantial investments in these industries. For example, Apollo Global Management, one of the largest private equity/leveraged buyout firms, recently exited a substantial ownership position in LyondellBassell Industries. Its original $2 billion investment, made in 2008 when LyondellBassell was teetering on the brink of bankruptcy, was sold for more than $12 billion in 2013. Billionaire Warren Buffett (through Berkshire Hathaway Corporation) controls Burlington Northern Railroad and Union Tank Car Company, while billionaire Carl Icahn has substantial investments in American Rail Car Industries and ACS Industries.
As the boom in U.S. oil and gas production continues to mature, it is likely that additional industries will follow in the steps of the chemical and railroad industries in riding the economic tailwind created by the fracking revolution.