Must-Read Article In The Atlantic Monthly On Watford City -- September 5, 2014

Too much happening today. I apologize to readers for not thanking them by e-mail for their links. I'm just trying to move as fast as I can.

This is an incredible story. Regular readers remember that it was The Atlantic Monthly that was the first mainstream media outlet that questioned (hinted) that the Bakken boom was over. That was February 12, 2013.

I haven't had a chance to read this article, but will come back to it later.

It will be fun to compare this article with what I just saw in Watford City last week (or maybe it was the week before; time moves fast). It will be interesting to see if The Atlantic Monthly mentions the oldest profession in this article. If not, count on The Dickinson Press to do so.

This is a very short clip of driving south out of Watford City. I was driving south; oncoming traffic obviously driving north into Watford City -- I wish I had started the filming a bit earlier, but I was at the traffic light and had to keep track of what was going on. This was Friday afternoon, Labor Day weekend:

Driving South Out Of Watford City, late August, 2014

The Economics Of Switching From Diesel To LNG -- RBN Energy -- September 5, 2014

RBN Energy: the economics of switching from diesel to LNG.

The shift from diesel to LNG (and sometimes CNG or field gas) as a fuel for drilling rigs and hydrofracturing pump engines is underway, and there is interest in having ships, locomotives and long-haul trucks run on natural gas from LNG too.

But before investing in new or converted engines that can run on natural gas or on a diesel-natural gas blend, diesel and shipping fuel users need answers to three questions: What will it cost? How much will we save? And—this is important, too--is the LNG infrastructure sufficiently robust to support the switch?Today we explore the economic ins and outs of converting from diesel to gas, and describe the current state of domestic LNG supply infrastructure.

With US natural gas selling at roughly one-quarter the price of crude oil on a per-BTU basis, it is not surprising that major consumers of diesel (an oil-based fuel whose pricing is closely linked to crude) are exploring the possibility of switching to natural gas from LNG. As we said in our Series Opener on the domestic use of LNG, diesel engines that power drilling rigs, fracking pumps, locomotives and long-haul trucks can be converted to dual-fuel operation or replaced with natural gas-only engines, as can ship engines now fueled by marine distillate or bunker fuel.

LNG, produced mostly with modest-size (less than 200 Mgal/d) plants sited near major customers, is seen as a logical, cost-effective and consistent quality source of gas. LNG also stores several times as much gas per gallon volume as CNG (helping with weight and storage space).

But there are significant costs involved in making a switch, and even some risk—the biggest of which is whether, after making the investment to change to dual-fuel or all-gas engines, you can count on LNG to be available when and where you need it. To help sort out the economics and the risk, let us first look at what is involved in switching engines from diesel (or shipping fuel) to dual-fuel or all-gas.

Random Update On Fracking Sand -- September 5, 2014; Huge Amounts Of Fracking Sand Being Used In The Bakken

A week or so ago I posted a note about the transportation cost for hauling frack sand by truck. Here's an update from the same source:

This weekend I’m moving 100 loads of 30/50 frac sand out of Marshfield, WI, to Denver, CO, $174.00 per ton, about $4.25 per mile.

We are also moving sand out of Woodbury, MN, to Sidney, MT, @ $100.00 per ton, Next week Alama Center, WI, to Genoa, NE, $64.00. Plant-to-plant move. 

More on this later, perhaps.

On a separate note, from the Berry Petroleum Company message board, from a Global Hunter Securities report yesterday:

Incredible. Last year the average well took 20 train cars of sand. This year on average 75 train cars. Lots of concern about deliverability of sand due to transport bottlenecks on the rails, but trucking has done OK making up any shortfalls, just more expensive. Big pump replacement program also, and upgrade, I expect the more sand you use the harder it is on equipment.  

And more: Sand comments from HAL. HAL spoke at an investor conference yesterday and expounded on a number of points related to sand logistics.

• Proppant volumes have increased by 37% vs. year-ago levels last quarter. A year ago, a typical job required 4MM lbs. of proppant (20 railcars) whereas today the company is doing jobs with 15MM lbs. (75 railcars, or one unit train). The issue is moving the material rather than sand availability (which is 40% excess capacity at the mine).

• HAL has spent two-thirds of its $300MM increased capex on Q10 pumps (designed for longer lives and a reduced failure rate) and one-third on transloading facilities and rail spurs to better service the Bakken, Niobrara and Permian. HAL has also increased the number of trucking companies it works with by 25 to 30 companies.

• More horsepower is required on location. The average crew size on location has increased by 10%-15%. HAL has heard anecdotally that crew sizes for other companies have increased by 25%-50%. This has driven down excess industry capacity abruptly over the last six months.

• HAL is unlikely to achieve its prior guidance of a 200 bps sequential improvement in NAM margins due to the logistic issues. Still, the company has 60%-65% of its contracts (92%-93% of its fleets are currently on contract) rolling off in Q3 and Q4 and intends to reset the sand prices to get ahead of the cost inflation issue. Our take: HAL is well positioned for the sand challenges due to its proactive expansion of trucking and rail capacity, process efficiency improvements and upcoming contract adjustments.

My hunch: the next big thing we will see in North Dakota -- huge frack sand storage sites. Fracking slows down in the winter; drilling slows down in the winter. The trucking industry tends to slow down in the winter. Truckers looking for work during slow periods. How to use those winter slow days? Haul fracking sand. Analogy: cargo planes landing at night at Frankfurt Airport about 40 years ago. 

CHS Will Build Fertilizer Plant In Spiritwood, ND -- Near Jamestown, ND -- September 5, 2014

Press release:

CHS Inc., the nation's leading farmer-owned cooperative and a global agriculture and energy business, announced today it will proceed with construction of a fertilizer manufacturing plant at Spiritwood, N.D.

The Jobs Report -- September 5, 2014 -- So Horrendous, Economists On Both Sides Of The Aisle Don't Believe It

One word: wow.

And it's a record: almost 100 million Americans NOT in the work force. Link here. Rate matches 36-year low.

I am off to a very late start this morning. I read the news on my iPad earlier this morning, still in bed, and was "shocked" when I read the numbers. I thought maybe I was over-reacting. It turns out I was not "off the mark."

I'm not alone; not by a long shot. CNBC is reporting: don't believe weak August jobs data -- economists.

"I don't believe it."

"This is anomalous."

"There's going to be an upward revision."

That's how three top economists reacted on CNBC to the much-lower-than-expected August jobs report, shortly after it was released Friday.

The U.S. economy added only 142,000 nonfarm payrolls last month, the Labor Department said, while the unemployment rate fell slightly to 6.1 percent. 

"I don't believe this data. It's not consistent with anything," Moody's Analytics Chief Economist Mark Zandi said in a "Squawk Box" interview.

He puts together the monthly ADP private sector jobs report, which on Thursday said jobs grew in August by 204,000.

And they say I have rose-colored glasses:

• Despite the payroll weakness, Krueger said he's thinks "the underlying trend is still 200,000 jobs of month." 

Yes, this was a horrendous job report, but before I comment, let's check out two other news stories. First, the breaking/braking news. Reuters couldn't even spin this report: US job growth brakes to eight-month low; labor force shrinks:

U.S. employers hired the fewest number of workers in eight months in August and more Americans gave up the hunt for jobs, providing a cautious Federal Reserve with more reasons to wait longer before raising interest rates.

Nonfarm payrolls increased 142,000 last month after expanding by 212,000 in July, the Labor Department said on Friday. The jobless rate fell one-tenth of a percentage point to 6.1 percent, but that was partly because people dropped out of the labour force.

Then, one paragraph later, the news is no better. The previous two months' figures were revised downward:

Data for June and July were revised to show 28,000 fewer jobs created than previously reported. In addition, manufacturing saw no job growth and retail payrolls declined for the first time since February.

Now, the Yahoo!Finance story: millions of job openings; so why aren't companies hiring?

The number of jobs added to the U.S. economy in August came in lighter than expected at 142,000 (analysts were looking for 230,000), according to the Labor Department.

Other data reveals plenty of help is wanted, but employers aren't hurrying to hire.

Even though there were 4.7 million jobs openings in June, the most since 2001, employers are waiting longer to fill them than they have in more than a decade, according to an index created by University of Chicago economist Steven Davis.

It's taking 25 working days on average to fill vacancies, a 13-year high, according to the Dice-DFH Vacancy Duration Measure. And for companies with 5,000 employees or more, it's taking more than twice that long -- an average of 58.1 working days.

The reasons given by an "expert":

• the economy remains sluggish, so employers don't feel desperate
• anecdotal evidence that employers are relying on social media -- taking longer to hire
• pretty significant changes in the labor market ... make employers more cautious (think the rules they have in Germany protecting workers from being let go; once hired, never fired)

CNBC, just before the government released the official figures:

August's nonfarm payrolls are expected to show a seven month of 200,000 plus hiring, a sign that the labor market is finally on the mend.

Not "200,000 plus" but almost barely half of that at 142,000. So, I take that as "a sign" that the labor market is finally NOT on the mend. LOL.

*************************************

1. The most incredible story line in this jobs report: no one believes the government figures.

2. Readers can already guess my comments regarding the reasons cited by the "expert" on why employers are slow to hire. There was no mention of the 800-pound gorilla. The phrase used by the expert, "pretty significant changes in the labor market," is code for the 800-pound gorilla that was not mentioned.

3. Hidden in the report: the previous two months' numbers were revised downward 28,000. Also, hidden: manufacturing saw no job growth and retail payrolls declined for the first time since February. (By "hidden," I mean: a) overshadowed by other worse news; b) not the headline story; and, c) talking heads did not mention this bad news. So most Americans are not aware how bad this report was.

4. It goes without saying why the unemployment rate ticked down to 6.1. Of course that's bad, bad news: when no one is hiring and job creation declines this much (so much that economists don't believe the government's figures), it means only one thing -- which talking heads mention: folks are dropping out of the job market, despite the fact that long-term unemployment benefits no longer exist. And yes, the dots do connect. 

5. For investors: a reminder. Ms Yellen is more concerned about jobs than about inflation. How do you spell "quantitative easing"? 

6. With regard to #5 above, one might want to look at what the European Central Bank did overnight. President Obama's worse second-to-worse nightmare: US bonds start paying a negative rate of return. His worse nightmare: rain disrupting his golf plans.

7. Now, back to that question -- with all those job openings, why aren't employers hiring? This is what is not being reported. As an example, contractors out in California send out one driver, and pick up as many undocumented workers as they need to do whatever jobs need to be done in construction, agriculture, etc. I can guarantee you those undocumented workers are paid in cash and no paperwork is generated to show any jobs created. The guys in Washington know that; the guys in California know that. President Obama's promise to "dreamers" to sign an executive order by the end of summer: another "line in the sand" that came and went, blown away. No such executive order signed and by most accounts, summer is over.

8. President Obama is, at best, jobs-neutral. More likely he is anti-jobs, based on his attitude toward the oil and gas industry, perhaps one of the two bright spots in the US economy, the other being agriculture. Of course, he won the war on coal some time ago, although like the Cold War (which he appears to have brought us back to) will be in the news after he leaves the Oval Office.  [Regular readers are aware that Russia has "invaded" Eastern Ukraine and the US has announced it will hold "military exercises" in Western Ukraine, and thus the digression about the Cold War.]

9. Service jobs? You have to be kidding. The million-man march yesterday struck fast-food restaurants demanding $150/hr wages. Oh, my error. $15/hr. Significantly more than the president's $10.10. The $15/hour would be on top of expenses driven by the 800-pound gorilla, which, by the way, is on hold (delayed by executive order) and won't kick in until 2015 and 2016 and 2017 and ...

10. Some past links:

• June 9, 2014: the AP admits the "new norm" may be higher than 5% unemployment.

• February 7, 2014: horrendous report. By the way does anyone still believe the government's official unemployment rate -- job gain horrendous, more folks entering the labor force (now that extended unemployment benefits lapsed), and official unemployment rate is at its lowest since October, 2008?

11.The report is even worse than the raw numbers. Remember: it is a fact that this is the slowest recovery ever in US history. We are five years into the recovery; for the past year, we keep getting spin that things are improving. And now this: US job growth brakes to eight-month low; labor force shrinks; and retail payrolls declined for the first time since February.

12. For investors: look at #5 again. I just checked the market. It looks like investors see the same thing from this report that I see: they love it. The market, after a bad opening, is now rising. But remember, this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here.

13. Let me know if I've forgotten anything.

14. Chuck Todd will interview President Obama on Sunday; my hunch is that this topic will not be covered; if it is, it will be in passing, superficial, and spun. Chuck Todd will not utter the words, "Sir, we are into the fifth year of the recovery and ...."

15. I assume the numbers will be revised upward by 100,000 come next month. The administration will have noted they forgot to count job growth in California, Nevada, Texas, and North Dakota.

Okay, these are the things I forgot to mention in the original post. Coming in from readers:

1. The most incredible data point was something NOT mentioned: George W. Bush was NOT blamed for this latest report.

2. With regard to the "expert" talking about major labor changes in the US -- regular readers are aware of the adverse ruling regarding McDonald's with regard to unionization.

As we noted, McDonald's was dealt a serious blow in late July after the National Labor Relations Board ruled that both the McDonald's Corporation and its franchisees were jointly responsible for the treatment of its workers. This precedent set workers at McDonald's and other fast-food restaurants on a course toward unionization, a long elusive goal and means by which employees could more effectively file unfair practice complaints.

3. Fascinating story regarding McDonald's and minimum wage. Yahoo!Finance is reporting:

As fast-food workers and their champions protest in 150 cities today in pursuit of a $15 minimum wage (with some arrests reported already), a wide gulf remains between the company line and the aspirations of the protestors. You'll no doubt be hearing about the demonstrations, which unions have encouraged two million home-care workers to participate in, as well as the calls for civil disobedience by organizers.

What you probably won't be hearing is the case against the minimum wage campaign. Enter Ron Piazza. The Wire caught up with him last month to talk about the business of fast food as well as his take on the ongoing efforts by fast-food workers and activists to push for a large minimum wage increase.  

Piazza says his managers make roughly $55,000 per year, which he notes is more than a teacher ("a noble profession"), and that his employees can flourish no matter "what schooling you have."

"People think we're a dead-end job. Well, I'm not a dead-ender. I've got 585 employees and 55 managers, they're not dead-enders." 

As for the minimum wage, Piazza sees it as a disincentive for hard work. For an example, he went through the hypothetical hiring of someone who makes an $8 an hour minimum wage and, at the end of two years, makes $10 an hour after learning more of the job and moving up. 

I've mentioned several times that a minimum wage of $15/hour for fast-food restaurants will hasten the day of automation -- I guess I missed this. They've been using automation in fast-food restaurants (McDonald's) since 2011. SelfServiceWorld is reporting:

I like to imagine a world where I could get my standard fast-food order – a grilled chicken sandwich with only mustard and cheese –sans the eye roll and sigh from the teenager behind the counter or drive-thru. If only I lived in Europe, where McDonald's already has self-ordering kiosks deployed in more than 800 restaurants, I could be as picky as I want without feeling guilty. I could even pay with my debit card without help from employees, freeing them up to do more important tasks like make food –which would reduce customer wait times.