This Next Oil Disaster Is Even Worse…
There is an accelerating oil disaster forming right now. And it is worse than the BP (NYSE:BP) leak in the Gulf.
Yet it still doesn’t register with most analysts.
We have seen three examples of it in the past two weeks.
First, on July 16th, a pipeline ruptured in the Chinese seaport of Dalian.
Then reports surfaced on July 26th that more than 150,000 barrels of crude oil were spilling from an Enbridge Energy Partners (NYSE:EEP) underground pipeline connecting the U.S. and Canada.
Finally, on July 27th, a tugboat hit an abandoned Cedyco Corp. (OTC:CYDC) wellhead in the waters off the mouth of the Mississippi River (in the beleaguered Gulf of Mexico).
Despite taking place in three very different places, these events all have one thing in common: They indicate that delivery infrastructures worldwide are beginning to show their age and their wear.
Leaking pipelines are hardly a new development. After all, BP had one coming down from Alaska a few years ago, and reports currently point to as many as 5,000 leaks on any given day in the extensive Russian oil pipeline network administered by state-controlled Transneft (OTC:TRNFF, although it’s hardly ever traded).
Then, in the case of the tug collision with the Cedyco wellhead, there are more than 27,000 other capped wells like that in the Gulf, some going back to the late 1940s. The integrity of at least some of them is very much an open question.
Elsewhere, the problem is even worse.
Thousands of insecurely capped wells from the Soviet period dot the coast of Kazakhstan. The water level there is rising, and crude is flowing back into the Caspian Sea. This has destroyed sturgeon breeding grounds, decimating the caviar industry and the local fishing economy along with it.
As a straining, aging system continues to put greater reliance on older, less maintained throughput networks, these problems will only intensify.
A $500 Billion Problem… With A (Very) Profitable Solution
There have been technological improvements in pipeline construction and materials, allowing for longer use and a reduced likelihood of rupture.
Unfortunately, in the U.S., an overwhelming amount of the 55,000 miles of main trunk lines and as much as 40,000 miles of gathering and spur oil pipelines are more than 35 years old. That makes them prime candidates for leaks… and worse.
It also indicates that the pipeline, terminal, and wellhead repair sector will be increasingly busy moving forward.
One thing is certain. The ability of companies to avoid repair will be drastically reduced. In the aftermath of the BP spill, new regulations issuing both from Washington and state capitals will require them to pay greater attention to leakages and facility integrity.
And that’s where the profit potential come in…
First, it will take increasing amounts of working capital to repair and maintain the extensive system of pipelines, terminals, pumping stations, and connections to both onshore and offshore shipping/transport locations. Companies that delay these repairs, in hopes of not having to worry about the matter, may end up simply worsening the result.
Currently, the immediate need worldwide is put at $500 billion… and it’s growing by about a billion dollars every week.
Second, this also means a lot of new business for companies that provide alternatives to simply watching a pipe corrode. As the system continues to deteriorate, there is going to be increasing activity in this sector.
Several of the firms likely to benefit first – such as BJ Services, PLIDCO (a leading manufacturer of devices and equipment to repair pipelines), and T.D. Williamson (becoming one of the leading global providers of pipeline inspection systems and applications) – remain, for the moment at least, private companies.
PLIDCO may be thinking about going public for the simple reason that it is the provider most likely to expand rapidly as the problems become more serious. Other companies that are currently private will be moving into raising capital as well.
In the meantime, however, this rapidly increasing sector does hold some great plays for the investor.
One is Insituform Technologies Inc. (NasdaqGS:INSU), presently repairing more oil, gas, water, and sewer pipelines worldwide. Another is the Mears Group (LSE:MER.UK), specializing in international applications of pipeline and drilling engineering and accident prevention. Primoris Services Corp. (NasdaqGM:PRIM) is positioning itself well for an expanding volume of work across a broad spectrum of pipeline repair needs in sectors from oil and gas to municipal waste water.
One company likely to profit from the rising concern over capped offshore wells is Cameron International Corp. (NYSE:CAM). (It’s also the world’s leading manufacturer of blowout preventers (BOPs) – including the one involved in the BP mess. However, in that case, the BOP itself seems to have functioned well. Problems arose elsewhere. And it certainly has held for over 100 days of oil flow since the disaster.) The CAM division addressing the rising capped offshore well problem is the fastest-growing in the industry.
As the problems associated with an aging infrastructure become more apparent, and damages rise, expect a wide variety of remedial services, equipment, and systems to become more visible.