Gulf Coast Energy Outlook Gregory B. Upton Jr., Ph.D. Louisiana State University Center for Energy Studies St. James Community Advisory Panel Meeting Gramercy, LA. June 6, 2017
Introduction Consensus Price Outlook Up-Stream Oil and Gas Industrial Outlook Conclusions 2
Introduction 3
Overview Gulf Coast Energy Outlook The inaugural Gulf Coast Energy Outlook seeks to provide a broad overview of the current status of trends guiding energy markets with an emphasis on the Gulf Coast Region. The research initiative is a collaborative effort of Louisiana State University s Center for Energy Studies and E.J. Ourso College of Business and focuses on the energy sector of the gulf Coast Region s economy. 4
Introduction Introduction The advent of shale oil and gas has fundamentally shifted the energy outlook not only here in on the U.S. Gulf Coast, but also globally. U.S. shale production has led to significant decreases in global prices, and all eyes are on the resilience of U.S. producers in determining long term price forecasts. While Gulf Coast production has increased significantly with shale, the composition of this production has changed significantly, creating potential winners and losers. Significant opportunities for industrial expansion have been created, and historic investments in mid-stream and down-stream sectors are on the horizon. The advent of shale has also fundamentally changed electricity markets, shifting towards lower emissions natural gas and creating opportunities for significant growth in renewables. 5
Consensus Price Forecast 6
Price Outlook Current Natural Gas Prices and Near-Term Outlook Natural gas prices are expected to stay below $3.55 per MMBtu in 2017 and under $3.75 in 2018. Percent $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $4.39 $2.63 $2.52 EIA $3.55 IMF $3.00 Wells Fargo $3.26 2017 2018 Deloitte $3.25 Bloomberg $3.17 World Bank $3.00 EIA $3.73 IMF $3.10 Wells Fargo $3.41 Bloomberg $3.14 World Bank $3.50 $1.50 $1.00 $0.50 $0.00 2014 2015 2016 Source: Energy Information Administration, U.S. Department of Energy. 7
Price Outlook Current Crude Oil Prices and Near-Term Outlook Most crude oil price projections for 2017 are around $55 per barrel. Prices are expected to increase in 2018, but remain below $75 per barrel. $100 $93.26 2017 2018 Percent $90 $80 $70 $60 $50 $40 $30 $48.69 $43.14 EIA $52.50 Goldman Sachs, Q1: $55.00 Deloitte $55.00 Morgan Stanley $51.00 Jeffries $57.00 Bank of America $59.00 Goldman Sachs, Q2: $57.50 Raymond James $75.00 Street Consensus EIA $59.00 $55.20 Morgan Stanley Goldman $64.00 Sachs $55.00 $20 $10 $0 2014 2015 2016 Source: Energy Information Administration, U.S. Department of Energy. 8
Up-Stream Oil and Gas 9
Up-Stream Historical Trends Up-Stream Oil and Gas From 1980 until the early 2000s, both Texas and Louisiana experienced significant decreases in crude production both in absolute terms as well as a share of total US production. This was offset, though, by the relative increased share of Federal Offshore production. Due to the advent of shale oil production, Texas has seen a resurgence in crude production and now accounts for almost 60% of Gulf Coast Production. While Federal Offshore production has remained relatively flat, its relative share had declined significantly. The future of investment in offshore production is uncertain. Louisiana (state production) now accounts for less than three percent of our region s production. Gulf Coast relative share of U.S. production is now a larger share than at any point in the past four decades. 10
Up-Stream Historical Trends Natural Gas Prices and Rig Counts New Natural Gas End Uses & Fuel Diversity Concerns 11
Up-Stream Historical Trends Gulf Coast Natural Gas Production New Natural Gas End Uses & Fuel Diversity Concerns 12
Up-Stream Historical Trends Oil Prices and Rig Counts New Natural Gas End Uses & Fuel Diversity Concerns 13
Up-Stream Historical Trends Gulf Coast Crude Production New Natural Gas End Uses & Fuel Diversity Concerns 14
Up-Stream Historical Trends Texas Share of Gulf Coast Crude Production New Natural Gas End Uses & Fuel Diversity Concerns 15
Up-Stream Historical Trends OCS s Share of Gulf Coast Crude Production New Natural Gas End Uses & Fuel Diversity Concerns 16
Up-Stream Historical Trends Louisiana s Share of Gulf Coast Crude Production New Natural Gas End Uses & Fuel Diversity Concerns 17
Up-Stream Oil and Gas Outlook 18
Production Outlook Gulf Coast Natural Gas Production Forecast New Natural Gas End Uses & Fuel Diversity Concerns 19
Production Outlook Unconventional On-Shore Natural Gas Oil Forecast New Natural Gas End Uses & Fuel Diversity Concerns 20
Production Outlook Off-Shore Natural Gas Forecast New Natural Gas End Uses & Fuel Diversity Concerns 21
Production Outlook Conventional On-Shore Natural Gas Forecast New Natural Gas End Uses & Fuel Diversity Concerns 22
Production Outlook Gulf Coast Crude Oil Production Forecast New Natural Gas End Uses & Fuel Diversity Concerns 23
Production Outlook Unconventional On-Shore Crude Oil Forecast New Natural Gas End Uses & Fuel Diversity Concerns 24
Production Outlook Off-Shore Crude Oil Forecast New Natural Gas End Uses & Fuel Diversity Concerns 25
Production Outlook Conventional On-Shore Crude Oil Forecast New Natural Gas End Uses & Fuel Diversity Concerns 26
Industrial Outlook 27
Industrial Outlook Industrial Outlook There is a symbiotic relationship between natural gas prices and Louisiana s energy-intensive manufacturing base. Louisiana manufacturing relies heavily on natural gas for heat, steam, power generation and most importantly, feedstock purposes. Louisiana s chemical industry is particularly reliant upon natural gas and natural gas liquids since both are used to produce a wide range of goods. 1 Abundant and inexpensive natural gas along side the U.S. increase in oil production has led to significant industrial investments. Significant investments in crude oil transport, including pipeline reversals, expansions, and additions, alongside the lifting of the crude oil export ban can create an environment that allows for the Gulf Coast to become the epicenter for hydrocarbon trading. 2 1. David E. Dismukes (2013). Unconventional Resources and Louisiana s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies and author s updates. 2. Upton (2016). Crude Oil Exports and the Louisiana Economy. A discussion of the U.S. policy of restricting crude oil exports and its implications for Louisiana. Baton Rouge, LA: Louisiana State University, Center for Energy Studies. 28
5.0 Manufacturing Industrial Renaissance outlook Gulf of Mexico region: energy manufacturing capital expenditures (by state). An estimated $240 billion in new energy-based manufacturing development is expected, most of which should occur between 2015 and 2019. Billion $ $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Louisiana Texas Alabama/Mississippi Source: Louisiana State University, Center for Energy Studies. 29
Louisiana energy manufacturing total capital expenditures by sector. The continued low natural gas price outlook has facilitated considerable development of over $142 billion: $46 billion already completed, $96 billion remaining, but heavily concentrated in LNG export facilities. $30 Industrial outlook $25 $20 Billion $ $15 $10 $5 $0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 LNG Export Methanol/Ammonia Cracker/Polymer Other Source: David E. Dismukes (2013). Unconventional Resources and Louisiana s Manufacturing Development Renaissance. Baton Rouge, LA: Louisiana State University, Center for Energy Studies and author s updates. 30
Workforce 31
Key Industries Oil and Gas NAICS 211: Oil and Gas Extraction NAICS 213: Support Activities for Mining Refinery and Chemical Manufacturing NAICS 324: Petroleum and Coal Products Manufacturing (refineries) NAICS 325: Chemical Manufacturing 32
Employment Louisiana oil and gas employment forecast 55,000 50,000 45,000 Jobs 40,000 35,000 30,000 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 33
Employment Texas oil and gas employment forecast 300,000 250,000 Jobs 200,000 150,000 100,000 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 34
Employment Louisiana refinery and chemical sector employment forecast 40,000 39,000 38,000 37,000 36,000 Jobs 35,000 34,000 33,000 32,000 31,000 30,000 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 35
Employment Texas refinery and chemical sector employment forecast 115,000 110,000 105,000 Jobs 100,000 95,000 90,000 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 36
Conclusions 37
Conclusions Conclusions Over the past decade, worldwide energy markets have been fundamentally changed due to the advent of U.S. shale oil and gas development. These changes have not only impacted where hydrocarbons are produced, but has also created significant change to the transportation, processing, and final use. The gulf coast has seen large increases in oil and gas production, with these increases mainly concentrated in Texas. Louisiana and Federal Offshore production have decreased in their relative importance. Significant investments in the refining, petrochemicals, and transport of hydrocarbons have been made, and will continue to be made over the next decade. The Gulf Coast is well positioned, and could potentially become the world-cited crude benchmark. 38
Questions, Comments and Discussion www.enrg.lsu.edu gupton3@lsu.edu