A top executive with the Louisiana Oil and Gas Association told industry officials in Lafayette on Wednesday that no one knows when the price of oil will rise from its current mid-$40 a barrel range, or even if the internationally traded commodity has bottomed out yet.
What is certain, LOGA Vice President Gifford Briggs said, is that a sustained low price doesn’t bode well for Louisiana’s oil and gas companies, especially those in the service sector that have spent years cultivating a workforce.
Briggs said one of the worries is the possible loss of skilled tradesmen and engineers to other business sectors, even those just 70 miles to the west of Lafayette.
“There are already companies from Lake Charles coming over and poaching electricians” from oil and gas service companies, Briggs said.
Briggs and other LOGA officials kicked off the association’s State of the Industry series at the Lafayette Petroleum Club. LOGA is scheduled to give five more presentations in cities associated with the oil and gas industry in the next seven weeks, including in New Orleans, Baton Rouge, Houma and Houston.
LOGA’s presentation this week was markedly different from one he made to Lafayette’s oil and gas officials last year. In early 2014, as the Louisiana Legislature was heading into its spring session, LOGA’s focus was enacting laws to defeat lawsuits that could cost the industry billions of dollars.
But since the second half of 2014, the price of oil has tumbled from north of $100 to the mid-$40s. On Wednesday, the price of U.S. benchmark West Texas Intermediate was $48.67, up more than $2 for the day but far less than its price a year ago.
Briggs said LOGA remains focused on state government heading into the 2015 legislative session. And, he said, LOGA will watch statewide, legislative and local elections slated for the fall.
The difference is that this year, oil price uncertainty has been added to the blend.
Innovations in drilling techniques pioneered in the United States led to a world oversupplied with oil. Add to that decreased demand after tepid economic forecasts from China and other big economies. Further eroding the market is the refusal of Saudi Arabia and other rich OPEC suppliers to cut back production.
How long will it last and will the price fall further?
“There’s not really any clear indication of how low and how long it will go,” Briggs said. “… Nobody has any idea.”
Analysts across the world are monitoring oil and trying to forecast what will happen. According to the January issue of the Brock Energy Report, “We are watching all of the energy markets for signs of a bottom, and the potential is there for a V bottom that includes a sharp rebound.”
There is some good news, Briggs said.
Deepwater drilling in the Gulf of Mexico should continue, Briggs said, because those projects take years to plan, finance and carry out. Companies that drill in thousands of feet of water are not scared off easily, he said.
Also, shale developments that are prolific oil producers in south and west Texas, North Dakota, in the northeastern part of the country and elsewhere are not so abundant in Louisiana. Those developments, which are expensive to drill and maintain, have been the hardest hit by oil’s slide.
Briggs said reductions in the number of U.S. rigs that drill into shale rock does not affect local economies so much because Louisiana has not been a hotbed for shale oil production.
Shale gas drilling in Louisiana, on the other hand, could be poised for a rebirth.
Hydraulic fracturing was perfected in the Haynesville Shale gas fields of northwest Louisiana in the mid- to late 2000s. But gas production in Haynesville flooded the U.S. market and provided a low-price preview of what would later happen to oil.
Natural gas went from more than $12 per million Btu in 2009 to less than $4 on Wednesday, according to the U.S. Energy Information Administration.
Briggs said that despite the sustained low price for gas, some companies have shown renewed interest in Haynesville drilling. He said demand for gas would increase once liquid natural gas terminals are built to export gas to markets overseas. And U.S. demand for natural gas will rise from a “manufacturing renaissance” fueled by the low-price energy, Briggs said.