Slump in global demand reaches Louisiana petrochem, services sectors

    The return of oil prices to $40 per barrel or so, where it has been hovering for more than a month now, is a rare bright spot in the overall economic picture, especially considering that crude futures were in negative territory as recently as early May.

    But while officials with the Louisiana Mid-Continent Oil and Gas Association say some producers are turning wells back on after shutting them several months ago, recent announcements from companies in the petrochem and services sectors suggest Louisiana is in for a long slump, even if it’s not as bleak as it appeared earlier in the spring.

    Turner Industries has laid off employees. Shell Oil is mulling the closure of its Convent refinery. More than 300 workers at the LAlumina plant in Ascension Parish are expected to lose their jobs, as the plant struggles to hang on. Though none of the developments is directly tied to oil prices, they’re all generally tied to slowing global demand, which is expected to stay depressed for months to come.

    “As a general rule, everyone is trying to cut back, back off of capital expenditures, reduce debt, unload underperforming assets,” says David Dismukes, executive director of the LSU Center for Energy Studies. “That’s what you’re seeing.”

    In the case of the integrated majors, like Shell, there’s pressure from Wall Street to cut back and “show they can weather through all this, which includes reducing their debt and improving their balance sheets,” Dismukes says.

    That belt-tightening has a trickle-down effect, which impacts service companies like Turner and specialty manufacturers like LAlumina. Though oil prices have nudged up with the reopening of the economy and increased demand for gasoline, the larger outlook for global demand is uncertain, which is prompting companies to batten down the hatches. That’s a worrisome trend for Louisiana’s workforce.

    “I think the bigger picture in industry right now is what does the global opportunity look like, recovery in China, which is where we market a lot of these products,” Dismukes says. “Until you get certainty in the global economy, pressure from the investment community is on having high quality balance sheets.”

    Dismukes has estimated it could be 2024 before Louisiana’s petrochem sector restarts expansion projects it has put on hold and the sector returns to its pre-COVID-19 level. 

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