Abundance of natural gas promises to give Louisiana industries a boost

01 22, 2012 by The Times-Picayune

As warmer-than-normal weather helped U.S. natural gas prices slide to a 10-year low last week, a major producer of methanol announced that it had secured land in Louisiana and was weighing moving an idle plant in Chile to the site, a pending decision driven in large part by the state's record gas production and steady shale reserves.

Louisiana economic officials believe this is a sign of things to come.

The Haynesville Shale gas field in northwest Louisiana, which was recognized last year as the highest-producing shale play in the country, has driven down electricity costs for some commercial users, particularly in the chemical industry. Stephen Moret, the state's economic development secretary, has predicted "tens of billions of dollars" of investment in heavy industrial operations will spring up in Louisiana in the coming years

Enter the Vancouver-based Methanex Corp., which announced Tuesday that it has secured land in Geismar. The company will decide this year whether to build a methanol plant on the site, an area that the company's chief described as "a large methanol-consuming region." The plant would not open until 2014.

"The outlook for low North American natural gas prices makes Louisiana an attractive location in which to produce methanol," Bruce Aitken, president and CEO of Methanex, said in a statement.

Regulatory uncertainty

Meanwhile, energy analysts and others in the utility industry are watching whether years of low prices and rising supply, coupled with uncertainty over federal regulations to reduce power plant emissions in dozens of states, will give way to a renewed appetite for natural gas, which emits less pollutants than coal or oil when burned.

That talk gained traction last summer, when Entergy Louisiana announced plans to build a $721 million natural gas unit at its Ninemile Point power plant in Westwego. The 550-megawatt plant, slated to begin construction this year, would replace two deactivated 1950s-era generators at the plant. Last year, Entergy Louisiana also closed on a deal to acquire a 580-megawatt natural-gas power plant near Eunice.

Earlier this month, the U.S. Energy Information Administration reported that natural gas prices would likely remain low this year. And while that may be good news for electricity users, the prediction would likely have worse consequences for drillers who may be reeling as prices continue to fall: The number of rigs drilling for natural gas declined by 11, to 780, in the week ended Jan. 20, according to Baker Hughes Inc. That's down from 906 rigs a year ago.

'Gas is so cheap'

The Energy Information Administration also released projections Thursday showing that exporting natural gas could increase prices domestically in the coming decades.

But while natural gas prices at the Henry Hub fell about 9 percent, from $4.37 per million British thermal units in 2010 to $3.98 per million Btu's in 2011 -- and registered at $2.32 per million Btu's on Thursday, the lowest since 2002 -- the price of crude oil rose 10 percent.

"It's never been this far out of whack," said Peter Ricchiuti, an assistant dean at the A.B. Freeman School of Business at Tulane University. "Gas is so cheap, it's just so plentiful."

In Louisiana, the country's leader in natural gas production, state officials and representatives of the natural gas industry have been scrambling for ways to put to use such an embarrassment of riches, including evaluating the potential for developing a compressed natural gas vehicle industry in the state.

Export deal signed

A separate alternative has been exporting it. Last fall, a Cheniere Energy subsidiary that operates a liquefied natural gas terminal in Cameron Parish signed a long-term agreement to begin exporting LNG to the international gas markets, potentially as soon as 2015. A similar effort to expand an existing LNG terminal to handle LNG exports could follow suit in Lake Charles.

Harvey Gulf International Marine in New Orleans has also taken the bait, contracting with Trinity Offshore to build two offshore supply vessels that will operate exclusively on natural gas, with an option for a third vessel.

The vessels, which will be built at Trinity's shipyard in Gulfport, Miss., are the first in the U.S. to be commissioned to operate exclusively on natural gas, according to Harvey Gulf.

Still, while a spike in demand could dwindle supplies and cause prices to climb, David Dismukes, an associate director at Louisiana State University's Center for Energy Studies, said he expects the uncertainty of the environmental regulations would likely trump those concerns.

"I don't think prices are going to get in the way" of a move toward natural gas, Dismukes said.

In addition, leaders in the U.S. energy industry will likely begin focusing on replacing aging infrastructure in the coming years with newer, larger and more efficient facilities than many of the coal-fired plants that the new regulations could force into retirement, Dismukes said.

As observers of the nuclear power industry are still measuring whether last year's nuclear disaster in Japan could curb efforts for a once-heralded nuclear renaissance in the U.S., natural gas could emerge as the leading option.

"It's getting time to start thinking about building again, and I think the technology of choice is going to be gas," he said.