Louisiana natural gas industry helps drive 'reindustrialization of America'

11 23, 2012 by The Times-Picayune

Louisiana's natural gas industry is thriving. Shell, BASF, Huntsman, Momentive -- chemical companies that depend on the state's large supplies of natural gas -- all boast large plants in Geismar, just a brief 30 minute drive south of Baton Rouge.

But just a few years ago, high and volatile natural gas prices were forcing companies to consider moving overseas in a veritable exodus of American industry. Now, industry-friendly areas like Geismar have some saying Louisiana is leading the way in the "reindustrialization of America."

With it come all of the usual accompanying factors - increased employment, interaction with local and state government as well as health and environmental concerns.

The newest name to adorn a sign in the small unincorporated area along the Mississippi is Methanex, the world largest methanol supplier. The Geismar site, which will begin driving pilings as soon as Monday, Nov. 26, is now only an open dirt field. But in two years time, the property will house a one million metric ton methanol plant.

Methanol is most often produced from taking natural gas and compressing it into a liquid form. The most common use of methanol is making chemicals such as formaldehyde, often used in housing.

From there, the chemicals made using methanol are found in just about everything -- from plastics, plywood and paints to synthetic fabrics and even explosives. Methanol can also be used as fuel, a much cleaner and greener gasoline substitute.

Gary Rowan, Methanex vice president for corporate development, told NOLA.com the site was chosen for its prime access to multiple modes of transportation, its skilled local workforce, reasonable capital costs of construction and the highly supportive nature of parish and state-level government.

"This was the one location that was the most proactive and helpful jurisdiction to do a project," Rowan said, referring to Louisiana writ large and Geismar, in Ascension Parish, particularly.

"Louisiana has an administrative process that works for business," Rowan said.

"I was surprised by the support they gave. Boy, are they ever cooperative. They are out there to do anything to help you."

"I'm not saying it about the United States. I'm saying it about Louisiana," Rowan added, explaining that while other states struggle with bridging the gap between state and federal government procedures in business development, "Louisiana is very proactive in their administration and permitting. And they don't cut corners."

Indeed, Louisiana has been recognized as a prime location for new business development in recent years, with a November KPMG study stating Baton Rouge has the lowest corporate tax burden in the U.S.

Specifically for the Geismar project, Louisiana Economic Development is offering Methanex $3.8 million to offset infrastructure costs and another $1.5 million for relocation expenses.

Louisiana Economic Development Secretary Stephen Moret said in addition to these "robust economic development incentives," the state has the lowest business taxes in the U.S. for new manufacturing projects, largely due to tax cuts enacted in 2008, and industrial electricity rates that are on average among the lowest in the country.

But it has been the recent low, stable natural gas prices from the Haynesville Shale field in northwest Louisiana, recognized as the highest-producing shale play in the country, that really began enticing companies like Methanex to the state.

"The timing of this project is also excellent," Methanex CEO Bruce Aitken said in July, when the company announced it would build a methanol plant on the site purchased in January. "The demand outlook for methanol is strong and there is little new production capacity being added to the industry over the next several years."

This was echoed by Rowan this week after the Geismar site received its final go-ahead from state officials.

"Natural gas prices are low and we anticipate them to be sustainably low for a fair amount of time," Rowan said Tuesday, Nov. 20.

"That's the reason we're building a methanol plant here...because natural gas prices are at a low to medium cost range."

Moret said it is exactly this confluence of events - low natural gas prices, key transport links and abundant local labor - that has been helping Louisiana "position itself as the destination of choice for major, downstream projects that will utilize natural gas as a fuel and a feedstock."

In the past year and a half, capital investment projects amounting to tens of billions of dollars have already been announced in the state. Moret said within the next three to four years, $50 billion worth of new industrial projects will be underway in Louisiana, including several of the largest manufacturing projects in national history.

"It is this new environment of widely available and low prices natural gas that is leading to a veritable renaissance of natural gas," Louisiana State University Center for Energy Studies associate director David Dismukes said.

The Methanex project, at $550 million, seems a small piece of the pie, but Dismukes said it was "an important large capital investment."

"These people are putting their money where their mouth is in terms of the outlook for natural gas," Dismukes said. "For them to make a commitment to making a capital expenditure of this magnitude...says a lot about the outlook for having abundant natural gas supplies."

However, not everyone agrees the methods of extracting natural gas in the state and nationwide. Louisiana Environmental Action Network (LEAN), along with Earthworks and ShaleTest issued a report in October saying there was evidence of local health problems among populations close to oil and natural gas development sites.
Haynesville Shale Environmentalist worry natural gas extraction will lead to negative health impacts. A recent report published warned residents around Louisiana's Haynesville Shale field in the state's northwest to be on the lookout for illnesses related to the gas extraction activities. Ted Jackson, The Times-Picayune

The report said Pennsylvanians living near the Marcellus Shale play "developed new health problems -- many of which are known consequences of exposure" to chemicals associated with oil and gas extraction.

"These findings are of particular importance for local residents who face extensive natural gas development surrounding areas such as the Haynesville Shale in Northwest Louisiana and the Tuscaloosa Marine Shale across Central Louisiana," a LEAN press release said.

The report specifically called out Pennsylvania's state regulations for being "too lax and outdated to prevent the impacts of modern-day energy development."

"Regulatory agencies," it added, "are often unable to conduct the oversight and enforcement needed to protect air and water quality and, in turn, health and communities."

Methanex received its necessary air permits from the Louisiana Department of Environmental Quality and the EPA this week. As a Responsible Care company, Methanex also issues an annual public report about its activities related to environmental protection, health and safety and social responsibility.

Since 1994, reduced direct, production-based carbon dioxide emission intensity at Methanex plants has reduced by 30 percent. Moret added any further regulation would only serve to stifle the current business climate.

"The economic outlook for Louisiana is very bright for the next few years, at a minimum, so long as the federal government doesn't discourage natural gas fracking and/or new manufacturing investments via onerous regulatory burdens," he said.

In fact, projects like Geismar's plant will provide value-added to the community and state, Moret said, in the shape of added employment.

According to Methanex, the plant will create up to 1,500 temporary construction jobs. Once completed, it will employ 130 people permanently. Although the product the plant produces would only be sold to large chemical producers - Methanex does not do retail sales -- it also don't anticipate their product being sold overseas.

"We don't anticipate any product to be shipped internationally from here," Rowan said, adding all their product will be destined for chemical producers in the U.S. gulf region.

"[These companies are] banking on this market, they're banking on the United States...and they're banking on Louisiana," Dismukes said. "So it says a lot about natural gas, the United States and Louisiana and its part of a trend that growing of American manufacturing coming back to the U.S."

While this surge in jobs is important, "even more exciting are the secondary effects of low, stable natural gas prices. With decades of low-price natural gas now available in the U.S., much of the manufacturing sector in the U.S. is poised to undergo a renaissance, which has only recently begun," Moret said.

"For a variety of reasons, I believe Louisiana is poised to benefit more from this development than any other state in the country."