With every dollar drop in the price of a barrel of oil, petrochemical companies are revising downward their 2015 budgets and curbing their plans for exploration. While local industry officials say the state is already feeling some effects of the expected cutbacks, they’re not yet concerned about the anticipated industrial construction boom, which is tied to the price of natural gas—not oil.
“The industrial construction is the saving grace we have in the state right now,” says Don Briggs, president of the Louisiana Oil and Gas Association. “Those projects are being developed because we have a cheap abundance of natural gas and oil prices are not impacting the natural gas market.”
With oil now selling for between $55 and $60 per barrel, activity associated with natural gas is about the only bright spot on the horizon at the moment, Briggs says. He predicts rig counts will continue to drop through the first quarter of 2015, and says most of the companies he talks to are are cutting their budgets between 30% and 40%.
“They’re doing this as we speak,” he says. “This, truly, is a very serious situation for our industry and the state as far as drilling activity is concerned and there are a lot of jobs and companies that are going to be tightening their belts and watching how they spend their money.”
That belt-tightening is particularly acute in the fracking industry. Economist Loren Scott says the Tuscaloosa Marine Shale play that cuts through parts of the Capital Region will be directly affected by the drop in oil prices.
“The problem with Tuscaloosa is that it is a very mushy shale so when you frack it the cracks don’t stay open,” he says. “They’ve kind of broken the code on how to do it but it’s very expensive and they need oil prices of at least $80 per barrel to make it work.”
Still, Scott remains optimistic oil prices will rise before falling to devastating levels, as they did in the 1980s. He cites Credit Suisse, which is predicting OPEC will cut back production, which is causing the price drops, after the first quarter.
“The Saudis want to keep prices down in the $50s (per barrel) to slow down our production,” he says. “But OPEC is a cartel and there are 11 other members and their budgets are dependent on higher oil prices, so they need the price to go back up.” —Stephanie Riegel
