The U.S. Gulf Coast energy industry, a major driver of the Louisiana economy, may struggle due to impacts of international issues such as tariffs and uncertainty in the Middle East.
The economic forecast conducted by the LSU Center for Energy Studies predicted that employment in Louisiana's oil and gas industry will likely remain flat since there hasn't been as much drilling activity while production will continue to grow.
"There are a lot of clouds that are out there, a lot of uncertainties," said David Dismukes, head of the LSU Center for Energy Studies.
Tariffs in particular are a "big challenge" for industrial projects, he said.
Overall, Louisiana employment in the oil and gas industry has not recovered since the crash in 2014 when oil prices dropped whereas growth in chemical manufacturing continues to grow. Dismukes and Greg Upton, assistant professor at LSU's Center for Energy Studies, crunched the numbers but also spoke with 100 people in the industry for the study.
U.S. natural gas and crude oil production hit 111 billion cubic feet per day and 12 million barrels per day respectively. Much of that stems from production on the U.S. Gulf Coast, which includes Louisiana, Texas, Mississippi and Alabama. U.S. crude oil production is expected to increase to 18 million barrels per day by 2030 - with about 12 million barrels coming from the Gulf Coast. That means about 70% of the U.S. oil production will come from the region over the next decade, up from 66% in 2019.
The West Texas Permian Basin produces about 14.5 billion cubic feet per day of natural gas. The Haynesville Shale natural gas production in North Louisiana has been growing over the past three years, from 5.8 billion cubic feet in 2016 to 11 billion this year. Eagle Ford natural gas production has been flat over the past two years at 6.5 billion cubic feet.
Gulf Coast natural gas production is expected to hit 42 billion cubic feet per day by 2020 and may grow to 43.8 billion by 2022. It may hit 56 billion in 2030. The steady flow of cheap natural gas means that industrial projects that use it as feedstock, power generation or for export will have ample supply.
U.S. liquefied natural gas export capacity is about 5.7 billion cubic feet per day and if all the projects announced are built it could grow to 52.5 billion cubic feet by 2025.
"The likelihood of all this capacity being developed is very low, since all require longer-term contracts that secure as much as two- thirds of the total project capacity in order to get to a final investment decision," according to the report.
The leading import countries for LNG is Japan, China, South Korea and India - which account for more than 60% of imports.
Gulf Coast crude oil production is forecast to hit 9 million barrels of oil per day by 2020, 9.6 million barrels in 2021 and 10.2 million barrels by 2022.
The employment outlook for Louisiana's upstream sector is flat as oil prices continue to remain relatively low despite potentially an uptick in offshore rig count in the Gulf of Mexico. Texas may shed 16,000 upstream jobs by the end of 2020. November crude oil price futures predicted oil below $55 per barrel.
"After discussions with upstream producers, particularly focused on offshore production, we are consistently told that while employment in shale formations nationwide is expected to decline over the next year, deep offshore production is expected to remain resilient," according to the report. "If anything, the rig count in the Gulf might even pick up in the coming year."
The potential uptick in Gulf of Mexico production could stem from the technological advancement of companies using tools to drill in higher pressure environments.
The big question is whether that technological improvement is marginal or a game changer, even still drillers can produce much more with fewer employees, Upton said.
"While production estimates are increasing every single company has told me...efficiency, efficiency, efficiency," Upton said.
Researchers predicted some employment growth in refining and chemical manufacturing in Louisiana and Texas with 2,500 and 7,000 jobs respectively by 2022, which is a 7% increased the next three years.
International uncertainties may damper capital investment in the local energy industry, such as a trade war between the U.S. and China and tension in the Middle East. Tariffs have been levied on chemicals manufactured in China and imported to the U.S., some of which are used in some chemical processes in Louisiana. In some cases, manufacturers have argued that China is the only manufacturer of those chemical compounds. Beyond that, China increased its tariff on natural gas imported from the U.S. from 10% to 25% in June as a retaliatory tariff on Chinese imports to the U.S. imposed by the Trump administration. This is significant because China is a growing customer of LNG imports from the Gulf Coast.
The Federal Reserve Bank of Dallas predicted that Louisiana could lose 7% of its gross state product if the U.S.-China trade war were to escalate further.
In September, there were attacks on Saudi Arabia's crude processing facilities in its oil-rich Eastern Province which immediately stalled production on nearly 6 million barrels a day, or about 6% of daily world supply.
Researchers predicted that of the $195 billion in energy manufacturing and export capital investments announced in the Gulf Coast to occur between 2019 through 2029 only about $131 billion may come to fruition. More near-term capital investment of $182 billion between 2019 and 2023 was adjusted down to $115 billion.
Essentially, about one-third of projects could be canceled, researchers estimated.
"A negative demand shock associated with reduced U.S.-based energy exports could negatively impact regional refiners and petrochemical companies that have made billions in local investments to serve these international markets," according to the report. "Lower exports, resulting from unnecessary trade restrictions, make the region’s recent energy manufacturing investments less profitable relative to management’s original expectations and reduce these firms’ incentive to make additional capacity investments until this uncertainty plays itself out."