As millions of us head for the highway en route to Labor Day fun, we’ll benefit at the gasoline pump from low oil prices.
And as much as it is a real plus, particularly at this time of the year, the fact is that it’s a hardship for many of our friends and neighbors in Louisiana who work in oil and gas discovery and extraction.
The collapse of oil prices late last year will continue to shape Louisiana’s economy, even if there are occasional small price rises based on various bits of news. That volatility notwithstanding, the price of oil is around $40 when, at one time, it was more than twice that per barrel.
One of the veterans of the oil patch, as a service-business owner and lobbyist, is Don Briggs, of the Louisiana Oil and Gas Association, the longtime advocate for “little oil” independents and service companies, as distinct from the globally integrated multinational companies like Chevron, Shell and Exxon.
He uses the phrase “new normal” because, as he told the Press Club of Baton Rouge recently, there are international factors working against a quick rebound in oil prices.
The Saudi Arabian-led oil cartel is not likely to push prices upward, even under pressure from oil states that are hurting economically, such as Venezuela and Russia. A likely deal with Iran to stop nuclear weapons development also will release trade sanctions, pouring hundreds of thousands of barrels of oil now in storage into the global marketplace.
An economic slowdown in China that has roiled the stock markets also has implications for oil, Briggs said. “Their consumption is declining,” he said of our oil markets in Asia.
While U.S. onshore producers have done well during the late boom, they are still hard-pressed with prices as low as they are, and there has been a collapse in the count of active rigs in Louisiana fields, onshore and just offshore.
Even the giants who drill in very deep water in the Gulf of Mexico are cutting back. The western Gulf lease sale by federal authorities recently drew a record low number of bids, at $22.7 million, one of the lowest takes for the government ever.
Those ultra-deep big rigs are long-term investments, of course, and the majors might well be continuing to produce oil for some time to come, but it’s a harder path during a downturn for “little oil.”
Employment will take a significant hit, just as it did in a major oil slump in the mid-1980s, Briggs said. “It is not a pretty picture,” said the man who has tracked drilling permits filed with the state over decades. “Last week, there were only six.”
Louisiana is an oil-consuming state, not just a producing state. Refineries in the Baton Rouge and Lake Charles areas, along the Mississippi and Calcasieu rivers, benefit from cheaper oil. Natural gas prices are also low, in part because of the same onshore development processes called fracking that fueled the U.S. oil production boom.
So, Louisiana may see some balancing of the economic impact of low oil prices, as natural gas consumers — and now, export facilities — benefit from the low gas costs.
But it’s still not an encouraging scene in the oil patch.
“We will see mergers, acquisitions,” Briggs said bleakly. “We are going to see bankruptcies.”