In a state well-accustomed to the fickle behavior of commodities, big swings in oil prices don’t necessarily create a stir. But when billions of dollars worth of planned industrial investment are potentially at stake, the story is a little different, as detailed in a feature from the spring issue of 10/12 Industry Report.
The decline in oil prices from more than $110 a barrel last June to below $50 a barrel in January sparked worry in some quarters that the drop might not only strike a blow to the petroleum industry, but could also endanger what many see as the biggest industrial expansion in Louisiana’s history.
A theoretical alarm sounded in January when South African energy company Sasol Ltd. put on hold its plan to invest as much as $14 billion into a new gas-to-liquids plant in Lake Charles. The plant was one of two large projects the company had on tap in the area.
Though oil prices have edged up in recent weeks, some concerns linger about how prolonged volatility might affect other industrial construction projects across south Louisiana.
David Dismukes, executive director of the Center for Energy Studies at LSU, says that gauging the future of those projects requires speculating not only on the direction of commodity prices, but also on how close the price of oil may come to the price of natural gas.
“It’s not the absolute price that matters for some of these projects, it’s the differential between gas and crude,” he says.
Among the projects that make up the $100 billion-plus basket of industrial development on tap across south Louisiana, the big gas-to-liquids plant by Sasol was heavily dependent on oil remaining much more expensive than natural gas. That’s because the plant aimed to profit by using gas to create liquid fuels that could be substituted for oil-based fuels produced by conventional refiners. When the price gap between gas and oil narrowed so dramatically, the project no longer looked as viable, though the company has said it may revive the plan later.
Big petrochemical expansions and projects announced by Dow Chemical, Cornerstone Chemical Co., Williams Olefins and more than a dozen other companies—including an $8.1 billion ethane cracker already underway by Sasol—appear to remain on solid footing.
“These projects are not harmed because natural gas prices are staying low,” Dismukes says. Even if gas prices edge up, he notes, the stability of Louisiana as a supply source gives the companies confidence in their local expansions.
“I still see billions [of dollars worth] of activity being maintained and the bulk of the announced projects materializing,” Dismukes says.
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