The Next U.S. Energy Boom is Underway in Appalachia

David Rheinlander used to dream of building a cabin in the woods behind his house in southwestern Pennsylvania. Now when the 57-year-old looks across his backyard, he sees a line of cut trees, piles of dirt, and stacks of steel pipe where he once envisioned a tiny cabin. For the past six months, construction crews carved their way through the back of his property. The roughly 100-foot-wide path they are cutting through the rolling hills extends about 700 miles to the west, running through neighboring Ohio and all the way up into Michigan.

The pathway is for a pipeline that will bring huge amounts of natural gas out of sparsely populated Appalachia and into big cities across the Midwest. The pipeline, called Rover, is being built by Energy Transfer Partners LP, of Dallas, which has spent three years and a total $4.2 billion on the painstaking process of winning permits, clearing miles of rugged terrain, and fighting a pitched legal battle against environmental groups and landowners.

Rover is scheduled to begin shipping as much as 3.25 billion cubic feet of natural gas a day in early 2018. When fed through a natural gas-fired power plant, that is enough to power about 30 million homes. Rover is one of a handful of pipelines set to open next year that will begin moving natural gas from the massive Marcellus and Utica shale formations that lie beneath parts of Ohio, West Virginia, Pennsylvania, and New York.

A relative latecomer to America’s shale revolution, the Marcellus and Utica regions are booming. In the past 10 years, natural gas production there, driven by advances in horizontal drilling, has multiplied by a factor of 10, to about 25 billion cubic feet a day, or roughly a third of U.S. output. Despite the increase in production, the energy companies that drill the wells to produce the gas complain they have been bogged down by a thicket of political and regulatory hurdles, as well as opposition from environmentalists and some landowners. These obstacles have prevented the region’s energy industry from reaching its full potential, they argue.

Sometimes dubbed the Saudi Arabia of natural gas, the Marcellus is thought to hold a century’s worth of reserves. But after an initial boost of investment and optimism by drilling companies, activity started to stall, mostly because there were not enough pipelines to deliver the gas to large markets. Companies kept drilling wells but left many of them uncompleted, waiting for the day when pipelines would be finished. Now, with a slate of projects opening in 2018, the number of drilled but uncompleted wells in the Marcellus has fallen 28% since February 2014. “The only thing holding back the Marcellus Shale is lack of energy infrastructure,” says Rob Thummel, managing partner at Tortoise Capital Advisors. “Natural gas production volumes have exceeded available pipeline capacity for several years.”

Fifty miles west of Rheinlander’s home, in eastern Ohio, Enbridge Inc.’s Nexus transmission line will soon begin its own 250-mile path up and around Lake Erie into Michigan. That project, scheduled to open around the middle of 2018, will be able to ship 1.5 billion cu. ft. of gas a day. And in northeast Pennsylvania, Williams Cos.’ Atlantic Sunrise project will soon be connecting that region’s gas producers to the Transco pipeline, a gas superhighway that runs from the Gulf of Mexico up the East Coast to New York City. Tracing a similar path, the $1 billion Penn East pipeline project is nearing final regulatory clearance to begin construction.

Taken together, these projects should allow Marcellus and Utica gas producers to ship an additional 7.5 billion cu. ft. of gas a day, increasing the region’s pipeline capacity by about a third, says Darren Horowitz, an analyst for Raymond James. “It is sorely needed as a long-term solution to free up highly economic Marcellus and Utica acreage,” Horowitz wrote in a late-September note.

Citations

1. https://bloom.bg/2h8d5tZ – BusinessWeek
2. http://bit.ly/2hG5QGs – Forbes

Western Union Looks to Digital Payments to Accelerate Growth

Western Union is benefitting from its expansion into digital payments. The company recently reported quarterly earnings that rose 8%, much higher than Wall Street estimates. Things are going so well that it also raised its profit outlook for the rest of the year.

The company, which has been around since 1851, is reinventing itself. The Colorado-based firm is now the world’s largest money transfer company. It has been spending heavily to ramp up the digital side of its business so customers can move money in seconds with just a few clicks on their mobile devices. It is also investing in its compliance operations to prevent money from moving to terrorists, drug cartels, and human smugglers.

Every year, migrants send hundreds of billions of dollars worth of remittances back to friends and family in their home country. And there is a massive industry that facilitates these payments—and has for more than a century. Lately, CEO Hikmet Ersek has been talking about the humanitarian side of Western Union and how it helps its customers, many of them immigrants and refugees, to send and receive money for nominal fees. “People really need us to support their loved ones,” he says. “Some of them send half their salaries back home and support them.”

The average transaction is about $300 and Western Union collects a fee of three to four percent on average. But they add up to $150 billion a year. The Western Union network is vast. It has 550,000 retail locations, it conducts money transfers in 200 countries, and does transactions in more than 130 currencies.

Western Union’s growth is promising, especially as digital spending becomes more commonplace worldwide, but the firm has work to do. Western Union’s digital reach is still relatively small—its website is only available in 37 countries, and its mobile app in 17, compared to the approximately 200 total markets that the firm serves. And its digital competition is about to increase substantially. The firm has already been facing some pressure from smaller, digital-first players, which compete on pricing by offering lower rates.

MoneyGram, Western Union’s largest competitor, was recently acquired by Ant Financial, an affiliate of Chinese e-commerce giant Alibaba. It is likely that Ant’s access could help MoneyGram ramp up their digital presence extremely quickly, which could put some pressure on Western Union to find ways to out-innovate its peers now, before it falls too far behind.

However, Ersek is confident that Western Union’s business will continue to grow. “You can’t stop globalization,” he says. “When money moves, we believe good things are happening so I think that will continue to happen.”

Citations

1. http://for.tn/2hcMhc2 – Fortune
2. http://read.bi/2h3BvAZ – Business Insider

The Good News Is . . .

• The U.S. economy added 261,000 jobs in October and the unemployment rate was 4.1% percent as labor conditions returned to normal following the storm-weakened September. A broader measure of joblessness that includes discouraged workers and those at work part -time for economic reasons fell sharply, from 8.3% to 7.9%. In addition to the October growth, an initially reported decline of 33,000 for September was revised up to a gain of 18,000. August’s count also was revised up from 169,000 to 208,000. The biggest gain in employment came from the hospitality industry. Professional and business services contributed 50,000 to the total while manufacturing added 24,000 and health care increased by 22,000.
• Boise Cascade Co., a leading telecommunications service provider, reported earnings of $0.81 per share, an increase of 211.5% over year-earlier earnings of $0.26 per share. The firm’s earnings topped the consensus estimate of analysts by $0.12. The company reported revenues of $1.23 billion, an increase of 14.9%. Management attributed the results to a strong commodity pricing environment, and robust growth in its plywood products segment.
• The Lennar Corporation said that it would merge with the CalAtlantic Group to form America’s largest home builder in a stock-and-cash deal worth $5.7 billion. The deal would create a behemoth with around 240,000 building plots in 21 states, a market value of about $18 billion and combined revenue of $17 billion. A decade after the big housing bust dealt a blow to many smaller home builders, the industry’s largest firms continue to grapple with higher regulatory expenses that make building homes — especially starter homes — too costly, according to some housing-finance experts. Under the deal’s terms, CalAtlantic shareholders would receive 0.885 Lennar shares for each CalAtlantic share.

Citations

1. http://n.pr/2iXj9WE – NPR
2. http://cnb.cx/2lwnm3s – CNBC
3. http://bit.ly/2AkseNa – Boise Cascade Co.
4. http://nyti.ms/2zioMVk – NY Times Dealbook

Planning Tips

Guide to Social Security Changes for 2018

Every October, the Social Security Administration (SSA) announces its annual changes to the Social Security program. Below is a brief guide to the changes set to take effect on January 1, 2018, according to the SSA’s annual fact sheet. Be sure to consult with your tax advisor to determine the impact of these changes on your Social Security benefits.

Social Security beneficiaries will see a 2% increase in payments – For 2018, 66 million Social Security beneficiaries will see a 2% cost-of-living adjustment (COLA). This increase is meant to counteract the effect of inflation. The Bureau of Labor Statistics (BLS) calculates the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), and this calculation ensures that a person’s Social Security check has the same buying power that it did the previous year. If the CPI-W increases more than 0.1% year over year between the third quarter of the previous year and the third quarter of the current year, Social Security will raise beneficiaries’ checks by the same amount. The 2% bump in 2018 marks the largest COLA increase since 2012, when benefits increased by 3.6%, and is significantly more than 2017’s 0.3% increase. However, for the average Social Security recipient, this 2% raise will amount to just $27 per month, as the average monthly payout increases from $1,377 in 2017 to $1,404 in 2018.

Maximum taxable earnings will increase to $128,700 – In 2017, employees were required to pay a 6.2% Social Security tax (with their employer matching that amount) on income up to $127,200. Any earnings above that amount were not subject to the tax. In 2018, the tax rate will remain at 6.2%, but the tax cap will increase to $128,700. This change is expected to affect roughly 12 million workers, according to the Social Security Administration. The flip side of this is that as the taxable maximum increases, so does the maximum amount of earnings used by the SSA to calculate retirement benefits. In 2017, the maximum monthly Social Security benefit for a worker retiring at full retirement age was $2,687. In 2018, the maximum benefit will increase $101 per month to $2,788.

Full retirement age will continue to increase – The absolute earliest a person can start claiming Social Security retirement benefits is 62. However, claiming before your full retirement age will result in the payout being permanently reduced. For those who turned 62 in 2017, the full retirement age is 66 and two months. But for those who turn 62 in 2018, the full retirement age will increase to 66 and four months. The full retirement age is set to increase by two months each year until it hits 67. So, for anyone born in 1960 or later, the full retirement age will be 67. (You can see your full retirement age here.) Those who delay collecting Social Security past their full retirement age can actually collect more than their full payout. In fact, those who put off claiming until age 70 would receive a 76% higher annual payout than a person who started receiving benefits at 62.

Earnings limits will increase – For those who work while collecting Social Security benefits, all or part of their benefits can be temporarily withheld. However, those income limits will increase slightly in 2018. Prior to reaching the full retirement age, beneficiaries will be able to earn up to $17,040 in 2018. After that, $1 will be deducted from their payment for every $2 that exceeds the limit. The 2018 annual limit marks a $120 increase over 2017’s limit of $16,920. For anyone reaching their full retirement age in 2018, they will be able to earn $45,360, up $480 from 2017’s $44,880 annual limit. For every $3 earned over the 2018 limit, Social Security benefits will be reduced by $1, but it will only apply to money earned in the months prior to hitting the full retirement age. Once a person hits the full retirement age, no benefits will be withheld if they continue working.

Social Security disability thresholds will increase – About 10 million Americans qualify for Social Security disability payments, and those thresholds are also increasing slightly in 2018. The legally blind will receive a maximum of $1,970 a month, an increase of $20 a month over 2017. For the non-blind, the maximum benefit will increase $10 a month to $1,180.

Citations

1. http://bit.ly/2yuaT64 – Social Security Administration
2. http://bit.ly/2hNi7Ik – US News & World Report
3. http://bit.ly/2j15BJy – Investopedia
4. http://bit.ly/2iuRwjT – Motley Fool
5. https://usat.ly/2y0TQJW – USA Today