As news of cutbacks and layoffs continue across the oil patch, there is a pretty obvious diagnosis of the problem: oil prices that plunged to about half the price of last June.
Yet the illness is acting on different patients at different levels of severity.
That’s seen along the coast of Louisiana, where one of the world’s concentrations of drillers and oilfield service companies are located.
Significant layoffs have already been announced by major companies.
“We anticipate the downturn in our U.S. markets will be severe and expect our international markets to be impacted as well, though with less severity,” Parker Drilling CEO Gary Rich told the Securities and Exchange Commission in a filing in February.
It’s hard to argue with that kind of price impact, and no one wants to see the costs to the economy and to hardworking families along the Louisiana coast.
But it is indeed a worse illness for companies that are focused on domestic drilling, including such onshore gas or oil finds like the Haynesville Shale or others around the country, or drilling in relatively shallow water.
Better off are the multibillion-dollar investments in deepwater energy.
Those giant platforms are one of the wonders of the modern industrial world but by their nature are not projects that are undertaken with next year in view, but rather for energy needs many years down the road.
The Acadiana Advocate recently reported on the contrast between busy segments of the Port of Iberia energy complex. One is riser fabrication and other deepwater component manufacturing for the far-offshore behemoths. The other is the dead-slow pace of languishing rigs, and thus workers, at the shallow-water parts of the port.
Rich’s honesty on the market prospect is echoed by others. “My own guess is this will go on for a couple of years,” said Eric Smith, associate director of the Tulane Energy Institute, a division of the Freeman School of Business at the New Orleans campus. Producers in the Gulf’s shallow waters, or those in gas-heavy shale formations like that of the Haynesville Shale, have reserves that are heavy on low-priced natural gas. And now oil is not bringing in much income.
If the drilling and oilfield services industry faces a crisis, though, it is not the only part of the energy industry that is separated into winners and losers lately.
The winners, mostly, are in the users of natural gas — the vast refinery complexes along the Mississippi River between Baton Rouge and New Orleans, and on the Calcasieu River, around Lake Charles. Petrochemical manufacturing benefits from low natural gas prices; giant new facilities are underway in southwestern Louisiana to export liquefied natural gas to foreign customers.
That has led to a boom for industrial manufacturing, mitigating the overall impact of the job losses so far in the drilling and services sector.
In the future, the price of oil as well as natural gas is likely to increase. The energy hunger in the world is not abating; today’s oversupply is in part a consequence of slower growth in America’s trading partners in Europe and Asia. As those countries seek more energy, costs go up.
Nevertheless, it’s a tale of two shipyards along the Gulf of Mexico, at least for a while.