State, federal policy changes could create 'uncertainty' in Louisiana natural gas industry: LSU expe

01 29, 2013 by The Times-Picayune

Louisiana's natural gas industry is booming. With prices at new lows, more than $60 billion in manufacturing investments are planned over the next four years, an LSU study released last week said. However, imminent state tax and federal environmental policy shifts could create uncertainty in the otherwise robust industry, an LSU expert said Monday.

"Policy is likely the biggest factor influencing unconventional natural gas and crude oil development right now, not necessarily the geology or the engineering aspects of the resource that are relatively well known," LSU Professor David Dismukes said after addressing the Baton Rouge Press Club Monday.

While Louisiana and the Gulf Coast generally will benefit the most from what what Dismukes called "the U.S. manufacturing renaissance" spurred by low natural gas prices, this uncertainty in state and federal policy shifts could have a negative effect.

At the state level, Dismukes said there is "uncertainty about whether or not current drilling incentives on unconventional natural gas plays will be preserved" as the administration of Gov. Bobby Jindal moves forward with its tax system overhaul.

Department of Revenue Executive Counsel Tim Barfield, who is heading the tax policy overhaul, said "significant incentive programs" would remain in place, possibly by replacing corporate tax credits with offsets for a different tax or by replacing them with direct payments to companies.

Sales tax exemptions for machinery and for business-to-business sales will also be kept in place, Barfield said.

But uncertainty concerning new federal environmental policy could also create issues. Dismukes said the EPA has become more "aggressive" in recent years, a trend that will likely accelerate now that President Barack Obama made responding to climate change a key goal in his second term.

"The current Administration has made no secret about its desire to increase the taxes paid by oil and gas companies regardless of the types of operations in which they are engaged," Dismukes said. "All of those create uncertainties in a very capital intensive industry," he added.

However, as of now, the picture for the future of natural gas in Louisiana is a rosy one. All else equal, the $62.2 billion in natural gas investment projects planned in the next four years would result in over $20 billion in direct investment and nearly $30 billion in statewide positive economic impact over the next eight years, the LSU study said.

This news will benefit the industrial construction industry the most, adding 26,000 jobs annually and $9.3 billion in new wages.