On track for growth

04 23, 2012 by The Advocate

Railroad expansion facilitates industry increase

Louisiana could be on the cusp of an industrial, manufacturing and exporting boom, industry watchers say, thanks in part to technology improvements allowing companies to tap into abundant, subsurface natural gas supplies millions of years old.

And the facilitator for that industrial upswing may be a familiar mode of transportation — the railroad.

Union Pacific Railroad announced in February it will spend $200 million to expand operations along the Mississippi River this year, creating 225 permanent jobs and 1,500 construction jobs in the process, while planning to invest a total of $500 million in the state over the next several years.

This year’s expansion includes $40 million for a new support yard in St. James Parish; $50 million to build an additional 29 miles of track from Livonia to Addis, providing dual lines for greater capacity; and undetermined amounts for increased staging space at the Livonia rail yard and for technology upgrades.

Company spokeswoman Raquel Espinoza said the expansion comes at a time when Union Pacific’s customers in the oil, petrochemical and agriculture industries in the southern part of the state are looking to grow.

A lot of that growth is being triggered by the plummeting price of natural gas, the feedstock used by petrochemical companies and other industries along the river.

Union Pacific’s decision to invest in Louisiana is directly related to the rebounding of the petrochemical industry, said Dan Borné , president of the Louisiana Chemical Association.

As natural gas prices soared a few years ago, Borné said, he wondered about the future of the state’s chemical industry. Louisiana lost 10,000 chemical manufacturing jobs in the last 10 years, he said.

Today, the state is rebounding, adding 2,000 more jobs to the industry in 2012 than were available in 2011, he said.

“Natural gas is our feedstock, like flour is the feedstock to a bakery,” Borné said. “Every plant up and down the river uses natural gas for something, or they’re buying power from someone who uses natural gas.”

As natural gas prices have dipped to 10-year lows, falling below $2 per 1,000 cubic feet as recently as Tuesday, petrochemical plants have ramped up production and are cashing in on foreign markets, he said.

“Oil is very expensive. Europe uses oil as their feedstock to make the same products that we do,” he said. “So we can go into Europe and beat European prices. The state wins any way you cut it. The railroad clearly sees it and is responding to market need. … The railroad is very bullish on Louisiana.”

Charles Goebel, site manager with SNF-Flopam, which makes water-soluble polymers used to extract oil from wells, said his company is planning for “aggressive expansion” within the next two to five years.

Although the company currently relies more heavily on trucks rather than rail to move product into and off its site, Goebel said, Union Pacific’s increased infrastructure investment will make it easier to shift more toward rail as they grow.

“We will start shipping by rail by the end of the month,” he said.

The oil industry

Louisiana’s oil industry is also poised to benefit in the coming years as Union Pacific lays down tracks parallel to its existing tracks, which cross the state.

Dan Borgen, chief executive officer of U.S. Development Group, a crude-oil hub that operates a rail terminal in St. James Parish, was at the site earlier this month as one train left on its three-day trip to the Bakken Shale oil field in North Dakota.

U.S. Development Group can accommodate two 104-car trains per day, off-loading 130,000 barrels of crude oil, Borgen said.

With horizontal drilling techniques having taken off in the last 15 years, Borgen said, the U.S. energy market has broadened to the point where his company can step in to fill a need in “pipeline-deficient markets” such as North Dakota. Oil extracted from the Bakken Shale can be shipped by rail in a few days to St. James Parish, where it is stored and then transported via pipeline to Louisiana refineries, he said.

“The railroad provides the physical capacity to move barrels to the best price markets,” he said. “Louisiana is one of the best price markets.”

U.S. Development Group will invest between $60 million and $70 million in the next few years to expand its terminal, essentially doubling the company’s 60-person Louisiana workforce, Borgen said.

The company’s investment is directly correlated to Union Pacific’s expansion, he said.

“We have a fixed amount of track; if there’s no more room, we can’t move. If the rails are congested, everything slows down,” he said. “What the railroad has done by adding track is de-bottleneck the lines, which improves the flow of the system.”

Agricultural markets

The coming growth in rail tracks is timed just right to take advantage of increased worldwide demand for U.S. agricultural products, including corn, wheat and soybeans, Louisiana Agriculture Commissioner Mike Strain said.

The U.S. will likely increase food production by 25 percent in the next eight years to meet a growing international market that is expected to capture 95 percent of the new middle class by 2020, Strain said.

“Louisiana is the largest exporter of grain in the U.S.,” he said, noting that “60 percent of all grain comes down the Mississippi to be exported through our ports."

Increased rail capacity will allow operations like the state-owned but privately run Louis Dreyfus Export Elevator in Port Allen to help meet foreign demand, Strain said.

Currently, the grain elevator has the capacity to handle only a few rail cars at a time. Within the next five to seven years, however, the facility will spend $85 million for upgrades to be able to accommodate 100 cars or more at a time, Strain said.

“The grain market is about to explode,” he said.

Impact of wages

Outside of the large energy and exporting industries, the effects of the railroad’s expansion will be the job growth in the region’s smaller communities.

Louisiana Economic Development has projected the entire Union Pacific project could result in 225 new direct railroad jobs and approximately 500 new indirect jobs.

Many of the direct jobs come with an average starting salary around $45,000 a year plus benefits, according to the Louisiana Workforce Commission. Those numbers translate into approximately $10 million a year in employee salaries.

Assuming those dollars are spent in Louisiana, the total economic impact on the region could be as high as $25 million, said Donald Andrews, an economics professor and dean of the College of Business at Southern University.

“That’s the most optimistic output if you assume the numbers are all new workers,” Andrews said without having studied the railroad’s expansion in depth.

The bulk of Union Pacific’s expansion will take place in Pointe Coupee Parish, where there has been a push over the last several years to raise salaries and become more competitive in attracting industry.

Parish Administrator Jim Bello said the increased rail capacity could be a selling point in attracting an oil drilling company.

“We’re desperate for higher-paying jobs,” he said. “We have an active economic development effort going on here; growth like this is critical for us.”