Workforce development, diversifying keys to keeping Louisiana’s energy boom from going bust, report says

Three decades ago Louisiana stood and watched as rising natural gas prices prompted countless fertilizer plants, methanol plants and other chemical producers to leave the state to take advantage of cheaper prices overseas.

With the most recent U.S. energy boom promising to bring thousands of jobs and more than $65 billion in planned projects in Louisiana over the next decade, one study says the state needs to aggressively pursue related industries and build on its existing infrastructure if it wants those investments to have a lasting impact.

The topic is the focus of a 150-page report by a Tulane University energy expert released on Tuesday (March 25) by the economic development group Greater New Orleans Inc.

The report, commissioned GNO Inc. and funded by Chevron Corp., highlights workforce development and industrial diversity among areas the state needs to focus on improving if it wants to avoid being caught flat footed by the next shift in commodities prices.

Eric Smith, associate director of the Tulane Energy Institute and the author of the report, doesn’t expect that price shift to happen for another decade or two.

The country is brimming over with cheap natural gas, a result of hydraulic fracturing, or fracking, a drilling process that has allowed companies to tap vast reserves of the resource. Fracking has also introduced new supplies of oil onto the market alongside traditional production in the Gulf of Mexico and onshore Louisiana and Texas.

But the report warns that every boom has its eventual bust.

“It may be that we will have a 20 to 25 year run this time, but eventually the competitive advantage will shift again,” Smith writes. “The answer to this sort of cyclic risk is to diversify and to avoid being dependent on one product, one feed stock or one technology.”

The report, citing U.S. Energy Information data, noted Louisiana lags well behind states such as Texas and California when it comes to oil and gas production. Texas almost doubled its energy production from 1.07 million barrels per day in 2007 to 2 million in 2012. That compared with a dip from 211,000 barrels per day in 2007 to 203,000 in 2012 for Louisiana.

While the outlook is positive for oil and gas production in the deepwater Gulf of Mexico off the Louisiana coast, that uptick will be countered by production slowing in state waters closer to the coast as well as in the Haynesville Shale in northwest Louisiana.

Louisiana is expected to play a much greater role in the transportation, refining and even exporting of oil, gas and related products produced across the country.

American Chemical Council data referenced in the report shows companies are expected to spend $14.5 billion on petrochemical plants and expansion at existing U.S. sites in 2015, with 78 percent of that spending occurring along the Gulf Coast.

Louisiana Economic Development is tracking some $65 million in projects that are expected to direct more than $20 billion in work to contractors in state.

Projects in the greater New Orleans region include construction of a new CF Industries nitrogen-based fertilizer plant in Donaldsonville and a Mosaic ammonia plant in St. James Parish.

The report highlights a number of strengths that helped Louisiana attract those dollars.

For the most part, the pipelines, deep draft ports, railways and other infrastructure needed to move oil, gas and chemicals from one place to another are already in place.

That has already attracted a high concentration of industrial activity up and down the Mississippi River, with 13 major chemical plants, five major refineries and one plastics facility located in the greater New Orleans region alone.

As a result there is an experienced energy and chemical manufacturing workforce with more than 104,000 workers spanning the state. That includes nearly 50,000 in the greater New Orleans area. Of the state’s 147,000 manufacturing workers, the chemical industry accounts for about 16 percent and oil and gas refining another 8 percent.

Those numbers helped attracted industry in the first place. But they’re not enough to keep them here, according to the report.

While Smith refers to a “critical mass” of well-trained workers, he notes that a large, well-coordinated job training effort will need to be in place in order to maintain and grow that talent pool.

The report also suggests Louisiana work to diversify the kinds of chemical production being done in the state. Louisiana has always excelled at producing the chemical building blocks used to make consumer products. Ethylene is a key ingredient in plastic bottles, PVC and many types of molded plastic products. Cumene and terephthalic acid are used to make nylon, which is then used to make everything from carpeting to lingerie fabric.

Historically those ingredients were shipped from Louisiana plants to production facilities on the East Coast. Before Southern states started seeing an upswing in population growth, companies preferred to locate product manufacturing along the Atlantic seaboard closer to the cities where their customers lived.

The GNO Inc. report says government and economic leaders need to lead a concentrated effort to bring more of that production to Louisiana in order to help it better weather the ups and downs in the upstream chemicals industry.

The state can’t rest on the laurels of its existing infrastructure, either.

In recent years, many Louisiana refineries were upgraded with complex equipment needed to process heavier, sulphur-rich crude oil coming from Canada. They may need to be downgraded again to handle the much easier to process light crude coming from U.S. shale fields.

Quality rail facilities will be necessary as companies working in new oil and gas fields in North Dakota, Colorado and elsewhere increasingly turn to rail cars to transport crude product. The Port of New Orleans and other deepwater ports need to be upgraded to prepare for larger and more cargo ships.

The report points to Avondale Shipyard as an example of an existing facility that can be overhauled to meet the needs of the energy industry.

Huntington Ingalls, the shipyard’s owner, completed the last ship under an existing U.S. Navy contract earlier this year and plans to close the facility. The facility employed about 600 in January, down from 26,000 in its heyday.

Avondale Industries, a Huntington subsidiary, was set up to pitch the shipyard as a place to build modular components for liquefied natural gas, or LNG, plants and other energy facilities. A contract has yet to be announced.

The report added there might be an opportunity to bring a portion of the construction of LNG-fueled supply vessels and barges now being done in Asia to Louisiana shipyards.

GNO Inc. President Michael Hecht said in statement the group will use the research to inform its plans to recruit and retain energy companies in the region.

“Louisiana is the epicenter of an energy boom that will put America on a true path to energy independence,” Hecht said. “However, in order to truly maximize this opportunity, we must learn from past energy cycles, in order to ensure that gains are consolidated and sustained.”

Read the full article here: