The Future of Energy in Louisiana! March 2014

Transcription

1 The Future of Energy in Louisiana! March !

2 GNO, Inc. Overview! GNO, Inc. is the economic development organization serving the ten parishes of Southeast Louisiana.! Logo! Business Development! Business Attraction! Business Growth! Business Retention! Research! Product Development! Policy! Workforce! Brand Development! Access to Capital! 2!

3 LA Energy Overview! Louisiana s energy renaissance is being driven primarily by technology.! Fundamental changes related to extraction technologies! Lowered cost sourcing for natural gas, natural gas liquids and crude! Cost advantages projected to last at least a generation! Lower cost is driving growth across the spectrum! Investments in existing technologies to increase capacity! Investments in new technologies are bringing new markets to LA (e.g. direct reduced iron (DRI) and gas-to-liquids (GTL)! Overall improvement in US export posture! Increased domestic marine shipments! 3!

4 LA Energy Employment! Energy employees earn almost double than the average LA employee.! ~103,000 employed! $8.7B in wages! 4!

5 History of Louisiana Energy! Louisiana has a long history of natural resource extraction, dating back to animal furs, indigo, and seafood.! Early 19 th Century! LA becomes involved primarily in timber and seafood canneries! Late 19 th Century! The oil and gas industry in LA begins in earnest in 1880s Shreveport.! 1960s and 70s! LA attracted new refineries and petrochemical industry because of cheap natural gas!!! 5!

6 Boom & Bust! The euphoria of the 70 s, when it seemed the boom would never end, may be similar from what we see today.! BOOM! LA evolved as a major energy hub for the first time, primarily due to inexpensive power generation, plentiful fresh water, wide-ranging pipeline infrastructure! BUST! Rising natural gas prices caused plants to curtail production or move facilities to places with lower cost raw materials and / or labor costs!!! 6!

7 What Happened! US natural gas production soared.! 7!

8 What Happened! Major refining and petrochemical investments occur making Louisiana what we know today.! 8!

9 What Happened! Supply begins to outstrip demand, and US price drops.! Natural gas consumption plummets! 9!

10 What Happened! As US costs rise, production increases around the world.! 10!

11 Lessons Learned! There are six key takeaways from past boom & bust cycles.! 1. The energy economy is cyclical! 2. Global competitive advantages will shift again! 3. Reliance upon a single product, technology, or feedstock is inherently risky! 4. Creating downstream value added opportunities will be the key to extending the boom beyond the immediate commodity conversion stage.! 5. Optionality in transportation (rail, barge, ship, and pipeline) will be necessary to take advantage of new hydrocarbon feed stocks. Rail and port facilities will need to be followed closely to make sure we maintain viable options. For example, maintaining the river at its authorized depth.! 6. Execution of our project backlog will require new training facilities focused first on skilled construction labor, longer term on skilled production workers. The key word is skilled. We don t have a shortage of jobs, but we do have shortage of qualified workers.! 11!

12 Current Energy Boom! The latest energy boom is being driven by two primary factors; new technology and low natural gas prices.! Extraction Technology! Hydraulic fracturing! Tertiary oil recovery! Surface strip mining!! Cheap Nat Gas! The energy value of 6,000 cubic feet of gas = 1 bbl of oil! The price of one bbl of oil is ~$100 and the price of 6,000 cubic feet of gas is $24! The result is that natural gas is one fourth the cost of liquid hydrocarbons as a source of heat and power! Major! Investments! Cheap energy for mfg! SASOL! BASF! 78% of investment along the Gulf Coast! 12!

13 Current Energy Boom! Louisiana has the 5th lowest natural gas gate price in the US and the lowest in the South.! Natural Gas Prices!! Residential Commercial Industrial! US Average! 12.62! 8.77! 5.00!! Louisiana ! 4.34! Source: US Energy Information Administration, May 2013, dollars per thousand cubic feet! 13!

14 Current Energy Boom! Global cost dynamics are changing in our favor, demonstrated by increased US exports.! 14!

15 Current Energy Boom! The impact in Louisiana is already being felt.! 15!

16 Current Energy Boom! And the future looks bright through the next several decades.! 16!

17 Natural Gas in Louisiana! Louisiana is the 2 nd largest producer of natural gas in the US and 3 rd largest consumer.! Shallow Water! Steady decline in shallow water offshore production! Cannot compete with shale gas (wet or dry plays)! Decline is causing owners to consolidate operations and scrap older equipment! CASE STUDY: Recent closure of McDermott facility in Morgan City! Deep Water! Production in deep water gas is growing! However, not growing fast enough to offset declines in shallow water gas! Onshore Natural Gas Liquids! Because of low natural gas prices, onshore shale activity is moving toward wet plays (gas mixed with crude) and away from dry plays (gas only)! This shift away from dry plays can be seen in Shreveport with the reduced activity related to the Haynesville shale! 17!

18 Crude Oil in Louisiana! Louisiana ranks third in total energy production in the US.! Deep Water! Deep water production is healthy, especially in the Gulf Coast! Major strengths:! 1. Concentration of majors! 2. Extended timeframe for developments! 3. Performance of Miocene plays! Onshore Unconventional! New discoveries in older basins are being accessed by horizontal drilling and fracking! CO2 tertiary recovery allowing for increased production from older, mature fields! Tar Sands Crude! Most logical location for tar sands crudes are the TX and LA refineries! Will begin to replace heavy sour crude imports!! 18!

19 Downstream in Louisiana! Greater New Orleans has the second highest refining capacity in the US, at 1.8M barrels per day.! Refining! Louisiana has 3 primary advantages:! 1. Capacity LA is 2 nd only to TX in refining capacity! 2. Cost Use of natural gas for process heat provides an innate international cost advantage, especially as prices remain low! 3. Scope Gulf Coast refineries are designed to handle poorer and cheaper grades of crude that most other US cannot handle!! Petrochemical! Most outside of US use gasoil or naphtha as its petrochemical feedstock! Gasoil s price is tied to the price of crude oil! US uses natural gas, which gives us a cost that is independent of crude oil pricing!!! 19!

20 Energy Boom!! Major new supplies of light sweet crude are reducing reliance upon light sweet oil imports. We now need to do the same with heavy sour imports.! 20!

21 Petrochem Market! 78% of investment related to the energy boom will occur along the Gulf Coast.! Current! Increase in utilization of existing petrochem operations! LA will see major growth in intermediate gas processing plants! Challenges! Encouraging additional vertical integration! Create more value add to intermediate chemicals! Opportunities! Produce more products that are being consumed by the ultimate end user! These products tend to be less capital intensive and more labor intensive!! 21!

22 Algae Biofuels Market! A new technology that could make sense for Louisiana.! Current! No current commercial facilities producing algae based diesel! Biofuels research projects are underway in LA! Challenges! Realistic timeline for success is in decades, not years! Opportunities! Utilize low cost electricity, abundance of CO2, and presence of liquids infrastructure to create industry! Existing refinery infrastructure exists that can be refurbished for biofuels! Large upside in terms of jobs and investment!!! 22!

23 Pipelines! The most robust pipeline network in the US, with 87,764 miles of onshore pipeline in LA.! 11,200 miles of natural gas pipeline in Louisiana! 7,300 miles of oil pipeline in Louisiana (not pictured)! 23!

24 Other Transportation! Louisiana is blessed with excellent transportation infrastructure, especially as it relates to energy.! Water! Connected by water to 32 US states, 2 Canadian provinces, and to deepwater ports around the world! Especially good option for LNG exports! Rail! One of only two cities with all 6 Class 1 railways! Petroleum for trains are not without complications, but is proving to be a viable option! 2 3 times the cost of pipeline delivery, but provides more flexibility in sourcing! Intermodal! The intersections of rail, water, and road give Louisiana great hubs for intermodal transportation! 24!

25 Current Energy Boom! But this boom is not without risks...! Above Ground Risk! Environmental! Political! NIMBY(Not In My Back Yard)! Below Ground Risk! Technology!! Geology!! Performance!! 25!

26 Maximizing the Boom! 1. Focus on affordable and labor intensive workforce development! 2. Promote value-add opportunities never historically explored (e.g. plastics molding)! 3. Expand / Improve infrastructure including pipelines, barge systems, and harbor dredging! 26!

27 GNO, Inc. Action Plan! 1. Coordinate transportation infrastructure! 2. Support downstream plastics products! 3. Incentives for downstream packaging (will require state legislation)! 4. Partner with entities actively working with stakeholder companies! 5. Expand workforce recruitment and training efforts! 6. Build capacity of small business and other suppliers! 27!

28 Contact Information Matt Rookard O: C: On the web gnoinc.org twitter.com/gnoinc facebook.com/gnoinc Michael Hecht O: C: Our address 365 Canal Street Suite 2300 New Orleans, LA