There’s just one problem with the United States bursting at the seams with new shale oil production…
Many regions don’t have the proper infrastructure to transport the fuel easily.
But where pipelines are absent, oil producers are turning to the rail system.
In increasing numbers, too… considering that today less than 25% of the oil in the Bakken region is shipped via pipeline – down from over 61% in 2011.
In fact, rail systems are increasingly becoming pipeline infrastructures themselves – transporting massive amounts of oil daily.[ad#Google Adsense 336×280-IA]That’s incredible news for railroad companies, which have recently witnessed a steady decline in coal shipments, as Obama wages war against the sector.
The trend shouldn’t change anytime soon, either, considering that trains don’t require long-term contracts or infrastructure capacity buildouts as pipelines do.
So, as the momentum in shale oil continues to create a mini boom in the rail industry, how do you cash in on the situation?
Probably not where you think…
Investors Flock to the Industry Titans
Most investors would turn to the “big three” railroad companies – Union Pacific Corp. (UNP), Berkshire Hathaway Inc. (BRK-A), (Burlington Northern) and Canadian Pacific Railway (CP).
And these companies are certainly reaping the benefits of this increase – especially because it fattens the bottom line 15% more than any other cargo to date:
- Union Pacific has tripled the amount of crude oil it’s moved compared to three years ago.
- Burlington Northern now transports over 700,000 barrels per day (bpd) compared to zero, five years ago.
- Canadian Pacific hauled 70,000 carloads in 2013, up from 500 in 2009.
But these bigwigs aren’t where you can make quiet profits off of the 21st century shale boom.
Shift Your Attention to the Pure-Play
One company that investors are overlooking is pure-play manufacturer, American Railcar Industries, Inc. (ARII).
As North America’s top designer and manufacturer of hopper and tank railcars, ARII creates the vessels in which the colossal volumes of shale oil now travel over rail.
A recent train derailment in Casselton, North Dakota that caused massive explosions has prompted lawmakers to pass new legislation, outlawing aging model railcars like those involved in this catastrophe. This means, plainly, that ARII stands to add countless more orders to their $814.5-million workload already backlogged.
Its only challenge will be to keep up with the explosive growth.
As more and more oil gushes from the Earth, there will continue to be greater need for transport. And as railways become one of the major players in this movement, safety regulations to guard against some of the spills and explosions we have seen splashed across headlines of late will become top priority.
Now’s the time to buy into railcar manufacturers. As regulations rise, so will demand.
And “the chase” continues,
Source: Oil & Energy Daily