The oil and gas industry is ringing in the New Year with oil prices trading at two-year highs, an uptick that could tilt the scales in favor of the industry in Louisiana after three years of weathering a major downturn.
That doesn’t mean there will be a rush to produce in Louisiana. Onlookers say the benefits will flow unevenly to different sectors. It is still unlikely that Louisiana’s industry will approach peak employment levels of years past, even with a recent boom in the petrochemical sector.
The uptick in price, if sustained in the $60 to $65 a barrel range at which it opened this year, could bring some relatively minor deepwater activity in the Gulf of Mexico. Instead, shale plays in states like Texas, Oklahoma and North Dakota will likely see the lion’s share of the benefits, amid what one analyst calls the current “Era of Shale” globally and in the U.S.
That’s largely because it is cheaper and quicker to drill in the shale plays than it is in the Gulf of Mexico, says economist Loren Scott. If U.S. shale production ramps up, that will flood the market with supply and drive prices down—or at least stabilize them. Partly underpinning the market is Organization of Petroleum Exporting Countries, which has held to a supply cut over the past year but could easily end that if prices rise.
“I don’t think there’s going to be a rush (in production),” Scott says of Louisiana. “They have to wait and see if this price is sustainable.”
Louisiana’s oil and gas industry is in a long-term downward trend in production. But it has shown positive signs since late last year. For instance, Scott says the Lafayette region posted modest job increases in November, helping boost months of recession-level employment figures.
The natural gas industry has increased production and rig count since 2016 and is poised for another modest boost in the coming year, says Gregory Upton, assistant professor at LSU’s Center for Energy Studies. The downstream petrochemicals and LNG sector should also see continued investments, though both are entering a cooling off period, according to Scott.
Louisiana’s shale plays—both for oil and natural gas—could see some increased activity in the coming year if prices remain in the “sweet spot” of $60 to $65 per barrel for oil and $3 to $3.50 per mcf for natural gas, Upton adds. PetroQuest Energy announced last month a purchase of 24,600 acres in Central Louisiana’s Austin Chalk formation for oil production.
“Louisiana has a multi-decade gradual decline in production,” says Eric Smith, associate director of Tulane University’s Energy Institute. “We’re not replacing the oil we’re producing. Over time you can expect it to go to practically nothing.”
That said, the downstream sector is in “great shape,” Smith says, and the midstream sector will also have a decent year.
Don Briggs, president of the Louisiana Oil and Gas Association, continues to lament coastal oil and gas lawsuits, which he says are stymying growth. Advocates, however, say the lawsuits are necessary to hold the industry accountable for land loss.
Still, Briggs says, the recent oil prices are “certainly a good thing.”