- THE MAGAZINE
The shale plays that are producing a new surge of energy products get a lot of attention — not all of it positive. But for one regional railroad, the story has been one of growth.
The Wheeling & Lake Erie operates 840 miles of track in Ohio, Pennsylvania, West Virginia and Maryland and handles over 100,000 carloads of freight per year. Not only is it in the heart of some of the fast-growing shale plays (Marcellus and Utica), it has the right connections. It links with three Class 1 railroads (Norfolk Southern, CSX and Canadian National) and 14 short line railroads. Its latest connection is with the Cleveland Commercial Railroad Lines (CCR) which provides rail service at the Port of Cleveland.
In the early 1990s, says Jonathan Chastek, assistant vice president of business development, the Wheeling & Lake Erie was a “steel and stone railroad.” But it began a diversification into grain, food products, lumber, paper, plastics and chemicals to start building its business. Then came the shale plays and a major growth spurt.
Now, the railroad handles large volumes of industrial minerals, petroleum products and stone. The Marcellus Shale Play drove strong growth starting in 2008, Chastek told attendees at the Northeast Ohio Trade and Economic Consortium’s (NEOTEC) annual logistics conference. From 2009 to 2010, the volume doubled. Shale carloads doubled again in 2011 and nearly tripled in 2012. Chastek expects a similar ramp up from the Utica Shale Play, but, he hopes, a little more gradually.
The Utica plays are more condensate and lighter oils, he explains, and he expects the growth could last 15 to 20 years.
All of this growth has led to some infrastructure development for the regional railroad, but some has been in small increments. One customer, says Chastek, has a transloading operation with a rail siding that can hold eight to nine rail cars. It ships 10 cars per day, so the railroad does double switches every day. They bring in truckloads of light-grade liquid petroleum gas (LPG), he continues, and transload to the Wheeling & Lake Erie for the outbound shipments. The 2,500 to 3,000 carloads being transloaded on that small piece of track provide a big benefit to the region, says Chastek, including taking trucks off the road.
Not everyone wants to spend millions of dollars on large facilities, he continues, and some like this customer only need a small piece of track.
There are the larger facilities, though, and Chastek points to one facility in southwestern Pennsylvania developed by Mark West Energy Partners LP. They spent $70 million on the project, which included building 4.2 miles of railroad and a yard capable of handling 300 rail cars.
Another facility that has been converted to transloading operations is the NEOMODAL facility in Stark County, Ohio. Built to handle containers and trailers, the facility just did not have the partners to move containers, explains Chastek. Over the years since it opened, the Norfolk Southern and CSX were aggressive in pursuing rail intermodal, providing strong competition for the facility. Until recently, it was being used as a lumber transload operation.
But, with the development of the shale plays, the NEOMODAL connection through the Wheeling & Lake Erie to the CN became a strength once again. The facility has three tracks. One is being used by Centennial Energy LLC as a transload for condensate-based product. Aux Sable transloads LPG on another. And, Unimin uses the third track for a frack sand transload, according to Chastek.
Chastek recounts other developments along the rail line that serve the growing energy segment. Mark West is putting in 27,000 feet of track at another Ohio site. Wexford Capital LP and Muskie Proppant LLC have developed a former coal facility which now handles fracking sands. And U.S. Development group and Transload Solutions cleared a former steel manufacturing site in Steubenville, Ohio to locate another frack sand facility. That site can hold 300 to 350 rail cars.
Chastek continues the list with a Baker Hughes site on 108 acres, which includes 4,500 feet of track for transloading; and Schlumberger Technology Corp. has a separate site in Stark County for transloading frack sand.
Among the more unusual stories is a yard in Canton, Ohio where the site was disused and overgrown. Superior Silica Sands worked with the Wheeling & Lake Erie to clear the site and the railroad brought the track back up to standard. Interestingly, the stone used to cover the yard came from another Wheeling & Lake Erie customer, and the railroad hauled the stone to its own site.
But an even more involved cooperative effort occurred when Superior Silica Sands wanted to develop a transload in Mingo Junction, Ohio. They needed about 55 feet from the center of the rail car to the center of the truck to load, says Chastek. The Mingo Junction yard Wheeling & Lake Erie operated didn’t have the space to handle that and, Chastek recalls, they said that they would be able to put in the transload if they knocked down the railroad’s buildings on the site, but they said “half in jest” that Superior would have to build them a new office building. He doesn’t go into the details, but the site is transloading fracking sand and the railroad has an office on the site.
The Rise of Shale Plays
The rise of the Utica Shale play has been fairly quick. Chastek points out that in September 2012, there were 18 rigs operating in Ohio. A year later, there were 32. The Utica play also went from 367 well permits to 756 in the same period. And, there were 133 horizontal wells drilled in 2012 and 374 a year later. The region went from 30 producing wells to 109, he adds.
Unlike eastern Pennsylvania, the Utica Shale play produces “wet gas,” explains Chastek. That means it is producing a lot of natural gas liquids (NGL), and that’s one of the reasons why drilling hasn’t slowed down despite low natural gas prices — the NGLs are in high demand.
The Wheeling & Lake Erie’s connection with the Canadian National has been a major advantage for the regional railroad. CN covers areas like Wisconsin where a lot of the frack sands originate and it also covers Western Canada where much of the condensate produced along the Wheeling & Lake Erie’s system are bound. Those condensates are used to thin the tar sands being developed there.
Mainline capacity is not a major issue for the Wheeling & Lake Erie, says Chastek. The railroad has been aggressive in its tie replacement and it has been putting down continuous welded rail. The continuous welded rail allows the railroad to increase the speed of trains on the line. Chastek points to one stretch which, nine years ago, was operating at 10 miles per hour. Trains now travel that same stretch at 40 mph. In addition to the improved speed, the lines are safer, he adds.
In addition to the upgrades to the mainline, the Wheeling & Lake Erie has been adding sidings and passing tracks where it makes sense. As Chastek explains, the passing tracks allow trains to depart from two locations using the same mainline track and pass each other. Without the passing track, one train would need to wait for the other train to clear the track before it could start its journey.
The yards are where Chastek sees a larger challenge. The railroad is rehabilitating yard track that had been taken out of service and is replacing track that had been ripped out years ago.
Some developing opportunities are also on the horizon. Natural gas is currently about four times cheaper to burn than oil on a BTU basis, explains Chastek. That, and a shift away from coal, could lead to a rise in natural-based fired electricity generating plants.
Another technology that uses natural gas is direct reduction iron (DRI). There are five steel companies looking at using DRI in the U.S. and though that is no guarantee any of those plants would locate in the region, Chastek points to the infrastructure and skill sets in the region that come from a long history in steel.