While the rapid decline in oil prices in recent months has sent shock waves through the oil and gas markets—and put a damper on some large-scale industrial projects planned in Louisiana—the overall outlook for the Louisiana market remains positive, according to David Dismuke, executive director of LSU’s Center for Energy Studies.
“I see a lot of opportunities,” said Dismukes this morning during his keynote address at the “Industry on the Move: What’s Next?” event presented by Regions Bank and 10/12 Industry Report at the Renaissance Hotel. “We have low commodity prices, low interest rates, and energy is affordable, abundant and diverse in this country, so the outlook from an economic perspective is really good.”
The drop in oil prices from more than $100 a barrel last summer to about $60 currently—which is up from prices below $50 per barrel earlier this year—is a correction that was to be expected, Dismukes said. What is surprising, he said, is the speed with which it has happened.
In south Louisiana, the lower oil prices have slowed drilling and production activity and put on hold—for now—on development of the Tuscaloosa Marine Shale in the Baton Rouge area. As a result, the services sector has experienced some belt tightening and job losses, though not as many as in other parts of the country.
“The service sector is still strong with about 38,000 jobs,” Dismukes said. “But it is down about 1,500 jobs since January and drilling is down about 1,000. That about 4% on the services side, 10% on the drilling side. … We’re all kind of holding our breath.”
The biggest potential impact of the oil price drop, however, is on the more than $50 billion of planned industrial development in Louisiana. Many of those projects—particularly the development of liquefied natural gas (LNG) and gas-to-liquids facilities—were attractive when the differential between oil and gas prices was great. Now that the ratio has shrunk, some projects have been put on hold.
“It makes a lot of projects much, much more uncertain,” Dismukes said. “I’m not saying LNG facilities won’t get built … but you’re not going to see speculative projects.”
Overall, however, Dismukes’ forecast for the industry is positive. Increased price volatility will likely continue for the near term, which will have a chilling effect on exploration and production. But Dismukes predicts a slow recovery and eventual oil price stabilization. He also predicts U.S. shale energy production will resume when oil prices rise to a more competitive level, which will give the U.S. greater supply diversity and reduce its dependence on OPEC.
“The genie is out of the bottle with shale production,” he said. “This is not a flash in the pan.”
Read more about Dismukes’ take on falling oil prices and how they will affect south Louisiana in a feature from the Spring issue of 10/12 Industry Report.
—Stephanie Riegel
