Union Pacific Sees Shale Energy Products Trend Up, Coal Trend Down

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--In the second quarter of 2012, Union Pacific Corporation's (NYSE:UNP) (UP) (Omaha, Nebraska) freight revenues were indicative of trends in uncertain economic times. Revenues from the automotive sector were up 25%; industrial products up 14%; chemicals up 13%; intermodal up 10%; agricultural up 1%; and coal down 9%.

Looking at the national rail network, the Association of American Railroads (AAR) confirmed the decline in coal traffic. In a report on weekly traffic totals for 2012 up to July 14, rail freight for petroleum products showed a year-over-year (YoY) gain of 38.8%, and coal showed a reduction of 10.1% for the same period. UP's coal traffic volumes fell 17% on a YoY basis to the end of June.

Total rail shipments were down 2.6% YoY, but motor vehicle shipments moved up 22.9% and metallic ore shipments were up 4.5%. For the 28th week of 2012, rail shipment totals were up 1.7% for the same period in 2011.

UP executives said that the continued replacement of coal with shale energy-sourced traffic in the form of oil and gas products was a prevailing trend. Equipment and materials required for onshore hydraulic fracturing also were a component of the traffic, they said.

Although shale energy shipments were slightly below expectations, UP said that it expected to quadruple carloads of oil out of shale plays to 100,000 in 2012. This would cause barrels of crude as output from Bakken, Permian Basin and Canada to increase. UP's petroleum shipments rose 92% YoY in the second quarter, which was assisted by moving terminals in St. James, Louisiana, and Galveston and Houston, Texas.

Shale energy will be UP's largest driver in the industrial and chemical segments, and the company is moving unit trains carrying only oil.

Quarterly operating revenue increased 7% for UP in the second quarter to $5.2 billion, against $4.9 billion for the same period in 2011.

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