Old Assets Revitalized by the Energy Boom

Every now and then, I drive from Pittsburgh up to Youngstown, Ohio to visit family friends.

I used to tell people that I was doing “industrial archaeology” because the drive takes me through numerous old, Rust-Belt areas of western Pennsylvania and eastern Ohio. Then of course, there’s Youngstown — ground zero for the Rust Belt. Really, if ever a city hit hard times over a couple of generations, it was Youngstown.

Lately, though, I’ve changed my description.

When I head up towards Youngstown, I tell people that I’m time-travelling to the future. That’s because Youngstown, and many other cities and towns along the way, are transforming. That is, the “shale gale” energy boom — including development of the nearby Marcellus and Utica oil and gas plays — is pumping billions of new dollars into otherwise old, worn-out economies. The results are stunning.

For example, near Youngstown, the French company Vallourec has built a new plant to process oilfield tubular goods. The gigantic facility cost over $650 million to build. Now it cranks out 350,000 tons of steel oil pipe and related products per year.

Even more impressive, this is no dirty, grimy old industrial shed, like those that formerly dotted the region for much of the past century. No, this Vallourec site is almost a “clean room” environment, filled with high-tech jobs that pay impressive wages. (And you should see some of the souped-up pickup trucks in the employee parking lot!)

When I travel to other parts of the country, I see much the same thing. For example, I visit Houston on a regular basis, for all manner of energy conferences and company-visits. When I’m down in Houston, I certainly know my way around the city’s famed “refinery row,” going back to my days with Gulf Oil Co. in the late 1970s.

In fact, there’s this one refinery off the Southeast Loop, I-610, just down Route 225. It’s an old site, first built-up in 1918 by the famed oil man Harry Sinclair. Later, the refinery became part of deal between Atlantic Richfield (ARCO) and the former Cities Service Co. (now CITGO).

A decade ago, this facility was showing its age. At first glance, it came across as one of those old industrial dinosaurs (speaking of the old Sinclair Oil Co.) that were dying out across the uneconomic landscape of America. But today, under new management and with hundreds of millions of dollars in upgrades, this site is among the most advanced refineries in the world. In fact, this old — but much remodeled — refinery takes high-sulfur crude oil and turns it into clean, reformulated gasoline and super-low-sulfur diesel. That, and a host of other advanced, value-added chemicals. All that, and it’s a key source for value-added exports that benefit the U.S. economy.

But hey. Wait a minute. I’m getting ahead of my story. Where is this tale going?

A Profitable Shale Sector

Last month I recommended a specialty chemicals player to my paid-up readers of Outstanding Investments — the company also produces high-end refined liquids like jet fuel and low-sulfur diesel.

The investment metrics are solid in the chemical sector.

Products include:

Olefins (including ethylene, propylene, and butadiene), polyolefins that comprise polypropylene (PP), high density polyethylene, low density polyethylene, and linear low density polyethylene.

Aromatic hydrocarbons, to include benzene, and specialty polyolefins, such as catalloy process resins, as well as PP compounds and polybutene-1 resins.

Propylene oxide (PO), PO co-products (like styrene monomers, tertiary butyl alcohol, and its derivative isobutylene), PO derivatives such as PP-glycol, PP-glycol ethers, and butanediol.

Acetyls, such as methanol, acetic acid, and vinyl acetate monomers; and ethylene derivatives including ethylene oxide, ethylene glycol, ethylene glycol ethers, and ethanol.

What the heck are these things, you may ask?

Well, I bet you use them every day!

You may not realize how much you — and hundreds of millions of other people across North America, Europe, Asia and more — already come into contact with chemical products.

For example, numerous parts of your home or office may be constructed with these materials. Consider the geo-membranes that keep water out of the foundation, or the additives in concrete that add strength. That, and water and sewer pipe, wire coatings, insulation, resins or roofing materials.

Your car may contain lots of chemical products — such as plastic components, coolants and antifreeze, fuel tank sealant, paints and coatings, and of course the clean gasoline or low-sulfur diesel in the fuel system.

Your clothing has them, too — materials, such as synthetic yarn. And when you take your clothes to the dry-cleaner, the cleaning agents may well be chemical-based products.

When it comes to, say, electronics, there are manner of plastics and wiring, as well as process chemicals, solvents and cleaning agents.

When it comes to the modern food system, these products make their way into everything from formulation ingredients for prepared foods, to films and packaging that touch even the freshest products at Fresh Foods or such. That, and chemical products go into formulations for things like soap, cosmetics, perfumes and even toothpaste.

So as you can see, you likely use any number of the seemingly-obscure chemicals listed above.

These days more and more of them are coming from U.S. manufacturers, too. (Like the one I recently shared with my readers.)

I foresee continuing growth, here. Considering low cost natural gas and gas liquids, and growing availability of light, sweet crude oil in North America. Profitability will likely grow, considering the costs for materials, availability of energy and solid management.

If things just keep tracking along the way they’ve been going, U.S. chemical companies have more up-side ahead.

It’s part of the rebirth of industry in the U.S. And it’s a buy.

Thanks for reading.

Byron W. King
Original article posted on Daily Resource Hunter

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Byron King

A Harvard-trained geologist and former aide to the United States Chief of Naval Operations, Byron King is our resident gold and mining expert, and we are proud to have him on board as the managing editor of Whiskey & Gunpowder.

This “old rock hound” uses his expertise and connections in global resource industries to bring...

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