Oil, Rail, Steel

A renewed American industrial economy is a reminder of the economic security free markets provide.

To hear Rodney Cohen’s story reminds one of the opening chapters of Atlas Shrugged , when innovation has the potential to further catapult America in its greatness. At the time of the writing, 1957, the scientific premise of the work was farfetched but upon which Rand played out a clash of communism and capitalism, a strange business anti-Darwinism—survival of the least fit.

In the more than 50 years since it was published, one premise has, in fact, become reality: production of oil from shale. Of course, the Ellis Wyatt character’s breakthrough may have been of oil from true shale—oil that has to be produced with mining or thermal assistance—unlike that from the Bakken, for example, which is from rock that sits between shale barriers.

However, the need to get all of this new oil to market brings the railroad into play and exactly what has developed from the more than 700,000 barrels of new Bakken oil that is now being made a day from North Dakota and Montana.

And, that brings steel into play, like the Hank Rearden character’s Rearden Steel. Factories across America are fast at work today, building thousands of new railcars for transporting Bakken and other new North American oil to refineries that were to be shuttered if not for this new, lower-priced feedstock. BNSF expects to be railing some 700,000 barrels a day of American oil to refiners by year-end. That’s up from some 150,000 barrels a day at year-end 2011.

Meanwhile, steel-making itself has become more economic as well by newly abundant, low-priced U.S. natural gas—produced from shale.

But, who is Rodney Cohen? A few years ago, Cohen had three heads—at least, that’s how some folks looked at him when he put forth an idea of investigating whether low-priced Bakken oil feedstock, the existing rail system and low-priced natural gas could make profitable a refinery in Philadelphia that was destined for closing.

Curious, indeed.

The managing director of The Carlyle Group’s U.S. Equity Opportunities and his colleagues continued to gather information. “We were trying to understand what the real potential was,” Cohen told attendees at Hart Energy’s Marcellus-Utica Midstream conference in January. “At that point, (production) numbers were being thrown around in the Bakken that were all over the place. It was very hard to understand what the real potential was.”

Eventually, the potential and the reliability of supply became apparent. Last summer, Carlyle closed the acquisition of the Philadelphia plant, just a month shy of Sunoco Inc.’s planned shuttering of the 330,000-barrel-a-day refinery, which produces some 26% of the region’s fuel.

Meanwhile, Bud Brigham, who sold his Bakken-producing Brigham Exploration Co. in 2011 to Statoil ASA for $4.7 billion, says the new U.S. industrial revolution reminds him often of Rand’s story. An advocate of reading Rand’s work, Brigham is co-executive producer of Atlas Shrugged II: The Strike , which premiered in Washington