Does oil industry have bright future?

05 16, 2012 by Daily Comet

Economist says yes.

The recovery of offshore oil and gas production and increased natural gas production should keep the local economy humming for the next couple of years, according to an imminent Louisiana economist.

Loren Scott, professor emeritus at LSU’s E.J. Ourso College of Business, laid out his forecast for the oil and gas industry in the state at Tuesday’s South Central Industrial Association meeting in Houma.

“The energy sector is going to be the driver of the Louisiana economy and much of the U.S. economy as a matter of fact for the next couple of years,” Scott said.

While deep water petroleum production has waned the past two years since the BP oil spill, signs are pointing to a complete recovery by the middle of next year.

Scott noted that 169 drill permits were approved in 2009, with 33 deep water rigs operational. Through the first quarter of this year, 44 permits had been approved. There are currently 24 rigs online with nine drill ship and semi-submersibles coming soon.

“They’ll be in place by the middle 2013. By that time, we’ll be on your way and doing really well,” Scott said.

“We are ecstatic because the industry is building back up,” said Jane Arnett, executive director of SCIA. “That’s one thing about the people from this area. We are very resilient, and when things don’t go right we find a way to make it right.”

Although natural gas and oil prices continue to drop from record highs in recent years, local producers and shipbuilders will stay busy.

Scott listed several reasons for this positive development including the closing of oil refineries in New England, plans to retrofit liquefied natural gas terminals in the Gulf from import to export use by 2016 and emerging technology such as floating production, storage and offloading units.

Another factor is the Western Gap Treaty, signed by the U.S. and Mexico but which still needs ratification, to open up 1.5 million acres of the U.S. Outer Continental Shelf to exploration of oil and natural gas reservoirs.

“You need barges, you need ships. All of those are built here in this particular part of the state,” Scott said. “Edison Chouset, Bollinger, Gulf Island Fabrications, McDermott, all of these guys that make all these things will benefit. The more they come back to the Gulf of Mexico, this is the place that is going to see growth.”

One matter that was hard to explain is the recent drop in gasoline prices, which had declined 28 straight days as of Monday, according to AAA.

Scott noted it was a rare phenomenon on the verge of summer driving season, but he didn’t expect that to last throughout the season.

“The price of gas goes down three to five cents for every dollar the price of oil drops,” he said. “I know I have a lower end estimate (in this forecast) at $70, but I would be very surprised if it goes below $90.”

Scott projected the price of natural gas to stay between $1.50 and $2.30 mm/Btu, and oil prices in the range of $70 to $110 a barrel through 2013.

If he is correct, that should keep the local petroleum industry happy and employment rates high.

“The Houma area economy is the most energy intensive economy in the state, and one of the most energy intensive in the country with the exception of North Dakota,” he said. “So any time there is a fluctuation in the price of oil or natural gas, it shows up immediately in y’all’s employment numbers.”