South Louisiana energy service companies see struggles ahead for 2016 _lowres

Advocate staff photo by LESLIE WESTBROOK -- Inland drilling rigs are stacked in the Port of Iberia Friday, December 18, 2015, in New Iberia, La.

Higher oil prices could add more than $100 million to the state's coffers in 2017 if a new federal forecast proves accurate.

The U.S. Energy Information Administration's latest report calls for an average crude price of $52.50 per barrel in 2017, an increase of more than $9 a barrel from 2016. In 2018, oil prices are expected to average $55.18. 

The forecast, if accurate, is good news for Louisiana, where a $1 swing in the average price of oil makes a $12 million difference in the state budget. Although the EIA's estimates fall on the conservative side, the federal agency's report includes a cautionary note: The futures contracts traded during the five days ending Jan. 5 suggest the market expects oil prices could range from $35 to $93 in December 2017.

"That tells you how confident people are in their ability to forecast the price of oil, doesn't it?" economist Loren Scott said. "I think that's reflective of just how difficult it is to forecast this sucker."

Merrill Lynch has predicted oil could reach $70 in 2017, Scott said. The Macquarie Group, recent purchasers of Cleco Corp., has forecast a price of $60.

Raymond James analysts have predicted oil will reach $80 for 2017.

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LSU Center for Energy Studies head David Dismukes said the EIA forecast could prove correct.

If global demand remains relatively flat, and OPEC's promised production cuts are offset by increased output from U.S. shale producers, there's nothing to burn off the current supply glut, Dismukes said. 

"It sounds very un-EIA-ish because it sounds very likely," Dismukes said. "They're usually not at all (accurate). EIA is great if you want the conventional wisdom. But if you're really looking for insights, that's not where you go."

Daily U.S. crude production dropped an average of more than 500,000 barrels in 2016 as prices slumped. The EIA forecast calls for daily U.S. crude production to increase by 100,000 barrels to 9 million in 2017 and to 9.3 million in 2018, largely as a result of production in the Gulf of Mexico. 

Scott said 14 offshore production platforms came online in 2015 and 2016, but the decisions to invest in those projects were made seven or eight years ago.

"So the increase in production ... should not be looked on as an indication that 'Hey, the Gulf of Mexico is coming back,'" Scott said. "I think that would be a bit misleading."

While the number of production platforms has increased, the number of Gulf drilling rigs has fallen to around 15, a fraction of the 56 that were working a few years ago, Scott said. It takes four times as many supply boats to service a drillship as a production platform.

That's unfortunate for Lafayette and especially the Houma metro area, the site of Edison Chouest's LaShip shipyard, Scott said. The company has basically shut down the shipyard and has docked at least 100 boats since the oil slump.

Dismukes expects prices to fall from their recent levels. OPEC members are unlikely to stick to production quotas because they need the cash, he said.

"There's just too many incentives to cheat and not enough penalties for not cheating," Dismukes said. "I think U.S. production is going to be really strong. People are going to be real surprised."

Meanwhile, advances in drilling shale formations mean the industry can respond quickly to higher prices, he said. 

The production increase is likely to be even more accelerated than normal.

Scott said between 4,000 and 5,000 shale wells have already been drilled but not completed while producers wait for prices to rise.

"They're just sitting there waiting to be fracked, and they could start producing immediately," Scott said.

The EIA forecast also calls for the natural gas spot price to jump from an average of $2.51 per thousand cubic feet in 2016 to $3.55 in 2017 and $3.73 in 2018.

The report says consumers can expect to see higher gasoline prices. The retail price is expected to rise from an average of $2.25 per gallon in December to $2.38 per gallon during 2017 and $2.41 per gallon in 2018.

Follow Ted Griggs on Twitter, @tedgriggsbr.