Roads, Not Pipelines, May Be Biggest Threat to Growth in Oil Hotspot

(Bloomberg) -- For an oilman who’s worked on the Gulf Coast, near the Russian Arctic and in Royal Dutch Shell Plc’s headquarters in The Hague, being stuck in traffic on a dusty West Texas highway is not the stuff of dreams.

The GMC Yukon rented by Amir Gerges, general manager of Shell’s operations in the Permian Basin, has crawled just four miles in the past hour. “That’s probably a truck that rolled over that’s causing this,” Gerges said, speaking from weary experience.

Roads, Not Pipelines, May Be Biggest Threat to Growth in Oil Hotspot

Turns out, it’s just routine work on Highway 302, an 83-mile-long, often single-lane road that runs from Odessa, Texas, home to a variety of oilfield servicers, to Loving County, in the western part of the Permian. It’s a stretch that saw traffic jump by 76 percent in 2017, and it’s continued to rise this year.

The delay helps Gerges prove a point: Roads, he said, not pipelines, geology or labor shortages, are the biggest long-term threat to sustainable growth in the Permian, the world’s busiest shale oil field. “Almost everything you need at the wellhead is transported by road,” Gerges said. “That’s the one biggest challenge, not just Shell, everyone faces.”

In the often upside-down world of West Texas, the biggest problem with building more roads is not the physical cost of the materials, but a lack of available workers and affordable housing. It’s tough to match the high pay offered in the oilfields.

“We lose employees to the oilfield all the time because they pay more,” said John Speed, the local district engineer for the Texas Department of Transportation. “Housing is a huge issue. Rents have jumped 30 percent in each of the last 2 years. There’s a year-long waiting list for new builds. ”

Roads, Not Pipelines, May Be Biggest Threat to Growth in Oil Hotspot

Fortunately, with oil money flowing in to the state coffers, funding is not an issue. Some $250 million will be spent next year to upgrade road infrastructure, mainly additional lanes, and will increase to $360 million in 2020, according to transportation department. That’s almost 10 times the amount spent in 2012.

For an engineer like Gerges, who is used to designing complex systems to minimize risk, a seemingly straightforward problem like road transport is actually the toughest to fix.

“There are manageable risks: skills, infrastructure, housing, health, but the piece that needs the most work is roads,” Gerges said. “One bad player can spoil it all. If there’s anything that’s going to constrain us from the projections we have for the Permian, it’s this.”

Besides slow deliveries, the lack of an adequate road system has also boosted the number of accidents.

Roads, Not Pipelines, May Be Biggest Threat to Growth in Oil Hotspot

There’s now a road fatality every 35 hours in the oilfield’s counties, more frequent than the 75 hours seen two years ago, according to the Permian Road Safety Coalition, a group of companies and community representatives. That’s 147 victims this year through July.

“It’s the most dangerous part of the whole business,” Gerges said.

Truck drivers are in such demand that a high-school graduate with a commercial driver’s license can easily be earning $120,000 a year in the Permian, perhaps as much as $200,000 a year with overtime.

“That’s hard to pass up,” said Gary Painter, Sheriff of Midland County since 1985. “But it means working 80, 100-hour weeks. A lot of them will cheat and use narcotics, helping them get through. All it does is create dangerous situation. We have a lot more accidents, a lot more fatalities.”

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