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May 23, 2012
LSU professor emeritus and noted economic advisor Loren Scott told members of the South Central Industrial Association what they wanted to hear – that energy will be the driving force in the U.S. economy for the foreseeable future.
With his standard presentation approach that combines humor with statistics, Scott addressed 219 attendees at the SCIA membership meeting last Tuesday, and pointed out facts facing the oil and gas industry including its position in domestic and global markets.
The well-known economist divided his comments into individually discussing opportunities for Louisiana natural gas and oil producers.
“Today, there is an economic civil war going on with the natural gas market,” Scott said. “Our forecast for [natural gas] prices is for it to keep coming down. Why is the price coming down? It is primarily because of [abundant] supply.”
Scott said U.S. natural gas producers could increase market share based on current extraction from domestic shale combined with chemical production demand in Europe. He noted that, in contrast to mainstream media reports of alleged dangers to water supplies, fracking has proven itself safe to the environment, animals and people. “Fracking has been around for 60 years,” he said. “In 2011 about 120,000 hydraulic fracking treatments were executed and there were zero cases of contaminated drinking water. After 60 years of fracking there has not been one single case of water contamination.”
Scott said that even federal government reports note that the benefits of natural gas extraction and use as an energy source outweigh environmental concerns.
“The price of natural gas has gone down in the United States, but it has not gone down in Europe,” Scott said. “Europe is a prodigious user of natural gas. One chemical plant [in Germany] is larger than the entire chemical industry in Louisiana. [Louisiana gas producers] are doing well and picking up market share because of low prices.”
The economist noted that although Europe has a larger amount of shale than Louisiana, environmental restrictions are tighter there than in the United States. As a result, extraction is limited and expensive, leaving the European Union as a viable importer of U.S. natural gas.
“What we have got to worry about is how long that will last,” Scott said. “Europe is going to continue to prohibit hydrologic fracking until we start eating up all of its chemical industry markets.”
Scott identified Louisiana oil and gas production as having significant impact on both the domestic and international markets. The challenge, according to this economist, is for industry and government officials to recognize and capitalize on the investment opportunity.
As for oil production, Scott said that although prices are high, the cost of U.S. production is half the level of what is spent by European companies for the same work.
The challenge for Louisiana oil producers is evolving with exploration of the Bakken formation in North Dakota. Production began there in the year 2000 and is expected to result in 270 million barrels being produced. The local problem, according to Scott is the cost of offshore production compared to costs associated with land-based wells.
“People have no idea of the complexity in oil production off-shore,” Scott said. The advantage of Gulf oil production, he continued, includes having an established area and stable production resources. “There are enough pipelines on Louisiana to circle the globe eight times.”
Scott noted that oil and gas producers have opportunities before them that not only influence the overall economy, but if properly utilized will benefit it as well.
In addition to Scott’s presentation, Gulf Island Fabrication COO and SCIA President Kirk Meche announced the completion of his term during this meeting and named a list of new officers that will be installed during the SCIA annual awards banquet on June 21.
New SCIA officers for the 2012-13 season include oil field and marine consultant Ted Falgout as president, Rig-Chem President Lori Davis as executive vice president, Bollinger Shipyards Vice President Lynn Falgout as vice president, CPA Charles Theriot as treasurer and Seacor Marine Vice President Robert Clemons as secretary.
LSU professor Loren Scott points out that oil and gas is in a position to continue to excel in the global market.
