Global Energy Fever Spurs Broad Industrial Opportunities in Massive, Sustained Road, Rail and Marine Developments Through 2010

---

Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Planning and securing the supply of oil and gas resources over the next two decades is accelerating the building of land and sea based transport infrastructures, in addition to the ever-increasing networks of pipelines stretching across borders between continents. The civil and heavy engineering sectors are in a position to benefit from a steady stream of contracts that can be expected to flow through 2010. Downstream from the heavy contractor end the providers of applied technologies including, marine turbine manufacturers, supply chain and materials handling equipment, measurement, safety and process control systems can expect exciting market opportunities.

The Russian Railroads Company plans to invest over $1 billion in the railroad infrastructure near the border with China. This was announced following inter governmental negotiations in Moscow and the proposal for a cooperation memorandum between Russian Railroads and the Chinese Railways ministry. The Russian company will build and electrify a 365-kilometer stretch of track between Karymskaya and Zabaikalsk.

Increased oil deliveries to China from Russia plus the potential for larger general cargo volumes in general has motivated the debottlenecking railroad move.

In another railroad project Kunming, capital of southwest China's Yunnan province is under construction and will connect to Thailand's capital Bangkok . This is expected to facilitate trade and communications between the two countries.

Russia has also become a signatory with China to the UN backed International Asian Highway Agreement which envisages an efficient and reliable 140,000 kilometer network of standardized roadways networked across the Asian continent, from Tokyo to Tehran and from Singapore to Samarkand through to Europe. 24 countries have already signed the agreement with the seven outstanding being : North Korea, the Philippines, Malaysia, Singapore, Bangladesh, Azerbaijan and Turkmenistan.

Participating countries will be required to negotiate bilateral and multilateral pacts to settle related issues such as entry permits, quotas and permitted transportation distances for foreign vehicles. Interfax reports that China has already signed twelve bilateral and multilateral transportation agreements with ten countries in the region.

In 2002, China, Thailand, and Laos agreed to a $45 million, three way split in road upgrade costs. An agreement to facilitate road transportation in the greater Mekong River region is currently being worked on between China, Vietnam, Cambodia, Myanmar, Laos and Thailand. In another multilateral road transportation pact China is working with five other Central Asian members - Russia, Kazakhstan, Kirghizia, Tajikistan and Uzbekistan - in the Shanghai Co-operation Organization.

An Asian Highway Network plan was agreed by 32 participating countries in November 2003 and much of the work deciding on routes and upgrading highways to minimum standards has already been completed in Asia. But around 17% still need to be upgraded and Un officials estimate that the proposed 140,000-kilometer network needs a further $16 billion invested in upgrades and signage. A major [part of the funding for the roadwork will come from the larger or more economically powerful countries in the pact. They are working with agencies like the Asian Development Bank, the World Bank and Japan Bank for International Cooperation

Nearly a fifth of the road network's total length will be in China, with 26,000 kilometers of highways connected. 11,000 kilometers have already been completed with the balance of 15,000 kilometers scheduled for completion in 2010, The Chinese ministry of communications, which did not release cost figures, said that most of the roads already in place needed upgrading in parts and improved signage. The roads connect 300 cities in China and cover a total population of 300 million with the greater part of the network passing through China's most economically backward western regions.

The director of UNESCAP's (UN Economic and Social Commission for Asia and the Pacific) Transportation and Tourism division, said, " For landlocked countries the Highway portends a revival of the cross continent access that the legendary Silk Route provided in the early part of the First Millennium." He added," The work immediately following the signing of the Asian Highway agreement is to begin negotiations now over a similar agreement with respect to trans-Asian railways." He noted that rail has a much larger transportation capacity compared to roads.

Navigational warning systems should benefit from the LNG carrier building boom that continues to gather pace. The transportation of LNG by sea carrier is now estimated to be competitive with pipeline transportation when the trip is over 2,000 kilometers and this does not take into account the ability to deliver from previously 'stranded' gas sources and the avoidance of frontier crossing. Asian demand for LNG is estimated to grow at a rate of 4% average for the next 40 years with Japan currently accounting for over 50% of global demand. Demand for LNG in Asia could double to more than 150 million tons by 2015.

This pressure from commitment to gas has seen LNG carrier orders increase by the year. In 2002 there were nearly 60 carriers on order globally. In 2004 we have witnessed Qatar alone estimating that it should order 58 vessels and now Exxon Mobil (NYSE:XOM) is looking to South Korean shipbuilders to provide 28 LNG carriers in a deal worth $4 billion over the next three years. Hyundai Heavy Engineering (KSE:009540) (Seoul, Korea), Daewoo Shipbuilding and Marine Engineering (KSE:042660) (Seoul) and Samsung Heavy Industries (KSE:010140) (Seoul) are all looking for part of the deal. Currently Daewoo is capable of building 8 carriers/year, Samsung a maximum of seven and Hyundai a maximum of six. Spurred by prospects of the Exxon business (and perhaps Qatar) Hyundai is looking to double its capacity to twelve LNG carriers a year.

Japan, although having been overtaken by South Korea, as the world's largest shipbuilder is still very much engaged in LNG carrier building as the world's largest consumer of LNG product.

This new wave of carrier orders is interesting that they are direct from LNG producers whereas in the past few years many carrier orders have been speculative backed by brokers looking for business coming out of LNG growth.

Orders for LNG carriers are also coming from LNG producers on the Atlantic routes from Norway and Russia, from the Caribbean and from westward routes from the Mediterranean to the east coast of the US.

Other basic transport infrastructure projects are planned in developing world regions including that of CVRD (NYSE:RIO)(Rio de Janeiro, Brazil), the massive Brazilian conglomerate is looking at the construction of a 500,000 to 540,000 ton capacity cargo ship in order to reduce transport costs to Asian markets and this could be a venture with Chinese partners. The Chinese cool- down on steel production will not preclude the need for more ore carrying vessels to be built for CRVD's exports. The company is also looking to the expansion of rail lines to serve the country's agricultural industry with one route from west central Brazil and another north from central Brazil to Maranhao state.

Parallel to all these land and sea developments are the new processing terminals and pipelines and, not to be forgotten, the gas stations on the road to Samarkand and elsewhere. Those cute signs at rural crossroads, beloved of the 'old' National Geographic, which showed distance from the point at which you were standing to far-flung and mysterious destinations, could find new favor with tourists and truck drivers on the new intercontinental routes. And how did you find the rest rooms at Samarkand?

And if the roaring pace of forward expansion is unsettling then you could always look back to marine scrap. The Gujurat Martime Board reported that Aland Ship Recycling Yard in India had beached 3.971 vessels up to March this year and had provided 29.7 million tons of scrap since 1982. Another market source said that 32 million deadweight tons of oil tanker capacity could be scrapped in the next twelve months because of the phasing out of one layer hulls. With a 2 million barrel tanker going for maybe $15 million scrap in China or Bangladesh and a single new LNG carrier coming in at $170 million you can take your choice at both ends of the energy transport cycle.