gulf coast energy outlook 2019 - louisiana state university · 2014 2015 2016 usd per barrel...

Gulf Coast Energy Outlook

2019

David E. Dismukes, Ph.D. • Gregory B. Upton, Jr., Ph.D.Dek Terrell, Ph.D.

2© LSU Center for Energy Studies

Introduction

Up-Stream Price and Production Outlook

Industrial Outlook and Export Economy

Employment Outlook

Conclusions


Introduction



• The 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 Businessand focuses on the energy sector of the gulf Coast Region’s economy.

Introduction



Introduction

Gold

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• This outlook would not be possible without feedbackfrom hundreds of stakeholders from across the energy industry.

• While “crunching the numbers” is a critical part of any synopsis report such as this one, equally as important is input from stakeholders who have an “on-the-ground” view of what is occurring in real time.

Thank you!


Up-Stream Oil and Gas Outlook

Current Crude Oil Prices and Near-Term OutlookMost crude oil price projections for 2017 were around $55 per barrel. Prices are

expected to increase in 2018, but remain below $75 per barrel.Actual 2017 prices ranged from $45 to $58 per barrel.

Actual 2018 prices have ranged from $62 to $71 per barrel.


$93.26

$48.69 $43.14

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2014 2015 2016

US

D p

er B

arre

l

GoldmanSachs, Q1:

$55.00

GoldmanSachs, Q2:

$57.50

GoldmanSachs$55.00

2017 2018

Deloitte$55.00

EIA$52.50

Jeffries$57.00

Bank ofAmerica$59.00

StreetConsensus

$59.00

RaymondJames$75.00

MorganStanley$64.00

MorganStanley$51.00

EIA$55.20

Price Outlook

Source: Authors’ research and Energy Information Administration, U.S. Department of Energy.

Crude Oil Futures Prices

New Natural Gas End Uses & Fuel Diversity Concerns


Price Outlook

Source: S&P Global. Market Intelligence.

Current Natural Gas Prices and Near-Term Outlook

Natural gas prices were forecasted to stay below $3.55 per MMBtu in 2017 and are projected to stay under $3.75 in 2018.

Actual 2017 prices ranged from $2.82 to $3.30Actual 2018 prices have ranged from $2.67 to 3.87


$4.39

$2.63 $2.52

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2014 2015 2016

US

D p

er M

CF

EIA$3.55

EIA$3.73

WorldBank$3.00

WorldBank$3.50

WellsFargo$3.26

WellsFargo$3.41Deloitte

$3.25

2017 2018

Bloomberg$3.17

Bloomberg$3.14

IMF$3.00

IMF$3.10

Price Outlook

Source: Authors’ research and Energy Information Administration, U.S. Department of Energy.

Natural Gas Futures Prices



Price Outlook

Source: S&P Global. Market Intelligence.

Forecast Performance



Production Outlook




Production Outlook

Gulf Coast Crude Oil Production Forecast



Production Outlook

Unconventional On-Shore Crude Oil Forecast



Production Outlook

Off-Shore Crude Oil Forecast



Production Outlook

Conventional On-Shore Crude Oil Forecast



Production Outlook

Gulf Coast Natural Gas Production Forecast



Production Outlook

Unconventional On-Shore Natural Gas Oil Forecast



Production Outlook

Off-Shore Natural Gas Forecast



Production Outlook

Conventional On-Shore Natural Gas Forecast



Production Outlook


Industrial Outlook and Export Economy

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$20

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

Natural gas price trends

Natural gas price reductions (and reductions in volatility) are the direct result of unconventional oil and gas development.

$/M

cf

Source: Energy Information Administration, U.S. Department of Energy.

Average 2001-2008: $6.24(standard deviation: $2.39)

Average1997-2000: $2.79

(standard deviation: $1.28)


Average post 2008: $3.43(standard deviation: $0.88)

Industrial/Export Outlook

Gulf of Mexico Region – Energy Manufacturing Capital Expenditures (by State)


Bill

ion

$

$0

$10

$20

$30

$40

$50

$60

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Louisiana Texas Alabama/Mississippi

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.


Capital expenditures have been relatively balanced across the two states.

Louisiana total capital expenditures by sector


Bill

ion

$

$0

$5

$10

$15

$20

$25

$30

$35

$40

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

LNG Export Cracker/Polymer Methanol/Ammonia 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.


The Louisiana capital expenditures are more heavily weighted to LNG export facilities than in Texas.

Louisiana exports (chemicals and refined product)

27© LSU Center for Energy StudiesSource: International Trade Administration

Louisiana exports of petroleum and coal products increased 374 percent between 2009 and 2014 but have fallen in recent years. Chemical exports have increased 161 percent

since 2009. All facilitated by new capacity investments.

$0

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Petroleum and Coal Products Chemicals

Pet

role

um a

nd C

oal P

rodu

cts

(Bill

ion

$)C

hemicals (B

illion $)Industrial/Export Outlook

Post-2009 capital investments in capacity assisting in facilitating export growth.

Industrial electric sales comparisons

Louisiana’s industrial electric sales (proxy for onsite production activity) fell 21 percent between 1996 and 2009. Since then, they have jumped 45 percent.

Note: Southeast states include Alabama, Arkansas, Florida, Mississippi and Georgia.Source: U.S. Energy Information Administration.

80

90

100

110

120

130

140

150

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Louisiana Southeast Average Texas U.S.

Indu

stria

l Ele

ctric

Sal

es, 1

990=

100



Industrial natural gas sales comparisons

Louisiana’s industrial natural gas sales (proxy for onsite production activity) fell 27 percent between 1996 and 2009. Since then, they have increased 44 percent.

Note: Southeast states include Alabama, Arkansas, Florida, Mississippi and Georgia.Source: U.S. Energy Information Administration.

60

70

80

90

100

110

120

130

140

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Louisiana Southeast Average Texas U.S.

Indu

stria

l Nat

ural

Gas

Sal

es, 1

990=

100




35%

40%

45%

50%

55%

60%

65%

70%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total Petroleum and Coal Products Chemical Manufacturing

Cap

acity

Util

izat

ion

(%)

Source: U.S. Energy Information Administration.

Estimated Louisiana CHP utilization

Cogeneration utilization (proxy for onsite production activity) at existing facilities has been stable, increasing slightly in 2015 and 2016.


U.S. Industrial Production Index


100

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106

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108

109

Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18

Indu

stria

l Pro

duct

ion

Inde

x

Industrial production consistently increasing since the lows of 2016.

Source: Federal Reserve Bank of St. Louis.


60

70

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90

100

110

120

130

140

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Note: The Broad Index is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. Base year is 2002.Source: Federal Reserve Bank of St. Louis.

Cur

renc

y U

nits

per

U.S

. $

Dollar Valuations (Federal Reserve Broad Index)

32

The dollar is up relative to the currencies: 25 percent appreciation over last five years, and six percent in the last 12 months.

© LSU Center for Energy Studies


0

2

4

6

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14

16

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Changes in Chinese GDP


Chinese economic growth officially reported at 6.8 percent, reflecting expectations of expansionary policy mix and a goal of doubling real GDP

between 2010 and 2020

Ann

ual P

erce

nt C

hang

e, G

DP

Projections

Source: International Monetary Fund.


Ammonia demand and capacity outlook

Excess global ammonia supply continues to 2022. This excess is comparable to last year’s GCEO forecast. Likely one of the reasons for a slow down in new project

announcements.

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2015 2016 2017 2018 2019 2020 2021 2022

Demand World Capacity U.S. Capacity GOM Capacity

Mill

ion

met

ric to

ns

Source: Author’s construct from previous slides and company annual reports and other press releases.

1. Ammonia/Nitrogen Manufacturing

34


Methanol demand and capacity outlook

Methanol market is way over supplied – this is important change from last year’s GCEO.

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50

100

150

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250

2015 2016 2017 2018 2019 2020 2021 2022


Mill

ion

met

ric to

ns1. Ammonia/Nitrogen Manufacturing

35



Ethylene demand and capacity outlook

Ethylene moves to becoming tighter than other chemical commodity markets and represents a big and important shift from last year’s GCEO.

0

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100

150

200

250

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025


Mill

ion

met

ric to

ns1. Ammonia/Nitrogen Manufacturing

36



GOM LNG capacity.

A

Existing

IE

ExistingA. Everett, MA: 1.035 BcfdB. Cove Point, MD: 1.8 BcfdC. Elba Island, GA: 1.6 Bcfd (+0.5 Expansion)D. Lake Charles, LA: 2.1 BcfdE. Northeast Gateway, Offshore MA: 0.8 BcfdF. Freeport, TX: 1.5 Bcfd (+2.5 Expansion)G. Sabine, LA: 4.0 BcfdH. Hackberry, LA: 2.1 BcfdI. Neptune, Offshore MA: 0.4 BcfdJ. Sabine Pass, TX: 2.0 BcfdK. Pascagoula, MS: 1.5 BcfdUnder ConstructionL. Corpus Christi, TX: 2.14 BcfdApprovedM. Lake Charles (Magnolia): 1.08 Bcfd

G

Regasification

Under Construction

Approved

Existing

Liquefaction

Under Construction

Approved

F

© LSU Center for Energy Studies 37

H

B

L DJ

C

KM


Natural gas and crude oil prices


-$20

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Natural Gas Price Crude Oil Price Differential

$ pe

r BO

E


Natural gas/crude oil price spreads well in excess of $60 per Bbl and as high as $90 per Bbl. These differentials have collapsed by about half.

Differential ($ per B

OE

)Industrial/Export Outlook

Example: Changes in competitiveness of US-sourced LNG

39Source: Various sourcesNote: *uses a BOE conversion of 5.8 Mcf/BOE.

Economics of LNG development are important, but there are additional factors that can influence development such as geopolitical and supply stability

concerns that could sustain continued projects.

Europe:LowHigh

Asia:LowHigh

Caribbean:LowHigh

Feedgas40-60%

($/MMBtu)

$3.00$5.00

$3.00$5.00

$3.00$5.00

Liquefaction12%-20%($/MMBtu)

$1.25$1.25

$1.25$1.25

$1.25$1.25

Shipping & Fuel20%-40%($/MMBtu)

$1.40$1.65

$2.50$3.00

$0.75$1.00

Regas5%-8%

($/MMBtu)

$0.50$0.50

$0.50$0.50

$0.50$0.50

DeliveredCost

($/MMBtu)

$6.15$8.40

$7.25$9.75

$5.50$7.75

EquivalentOil Price*($/BOE)

$35.65$48.72

$42.05$56.55

$31.90$44.95

Henry Hub (11-15-2108):

$3.91

WTI(O11-15-2108):

$56.59 © LSU Center for Energy Studies

Brent (11-15-2108):

$66.70


Source: U.S. Department of Energy.

U.S. LNG capacity development outlook.


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70

2017 2018 2019 2020 2021 2022 2023 2024 2025

Existing Capacity Additional Capacity

Cap

acity

(Bcf

/d)

If all of the LNG applications currently filed with the Department of Energy were to come online, U.S. liquefaction capacity would exceed 60 Bcf per day

by 2025.


Source: U.S. Department of Energy.

GOM LNG capacity development outlook.


0

10

20

30

40

50

60

2017 2018 2019 2020 2021 2022 2023 2024 20252


Cap

acity

(Bcf

/d)

If all of the LNG applications currently filed with the Department of Energy were to come online, the GOM liquefaction capacity would exceed 50 Bcf per

day by 2025.


U.S. refining capacity and utilization.


Operable capacity at U.S. refineries has increased over 20 percent since 1995 while utilization has remained stable at 90 percent.

Source: Energy Information Administration, U.S. Department of Energy.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

1985 1989 1993 1997 2001 2005 2009 2013 2017Operable Capacity Utilization

Sur

plus

Cap

acity

(MM

Bbl

/d)


GOM refinery capacity outlook.

GOM refinery capacity has been increasing annually at an average rate of 1.5 percent per year.


6

7

8

9

10

11

12

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025


Cap

acity

(MM

Bbl

per d

ay)


Petroleum and liquid fuels demand.


75

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90

95

100

105

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

U.S. Rest of World

U.S

. Pet

role

um D

eman

d (M

MB

blpe

r day

)

U.S. demand for liquid fuels has been relatively flat, while demand in the rest of the world has been increasing underscoring the opportunities for new Louisiana-based energy

exports.

Rest of W

orld Petroleum

Dem

and(M

MB

blper day)

Projection



U.S. petroleum product imports and exports.


Pet

role

um P

rodu

ct Im

ports

and

Exp

orts

(MM

Bbl

per d

ay)

In 2011, the U.S. became a net exporter of petroleum products. Net exports have increased over 600 percent since then.

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-4

-3

-2

-1

0

1

2

3

4

5

6

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Imports

Exports

Net exports

Distillate Motor gasoline Other petroleum products



Gulf Coast petroleum net exports.


Gul

f Coa

st P

etro

leum

Impo

rts a

nd E

xpor

ts(M

MB

blpe

r day

)

The Gulf Coast region became a net exporter of petroleum products at the end of 2008. Since then net exports have increased at an average annual rate of 40 percent.

-3

-2

-1

0

1

2

3

4

5

6


Imports Exports Net Exports




Employment Forecast


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

Employment Forecast

Relative energy sector sizes as measured by employment in 2017.


Percent of Region Total Employment Percent of Industry Employment in US

RegionOil and Gas Refining and

Chemical Manufacturing

Oil and Gas Refining and Chemical Manufacturing

Alabama0.1% 0.7% 0.3% 1.4%

Louisiana1.7% 2.0% 7.2% 4.0%

Mississippi0.3% 0.7% 0.7% 0.9%

Texas1.7% 0.9% 47.6% 11.0%

Gulf Total1.4% 0.9% 55.8% 17.3%

US Total0.3% 0.6% 100.0% 100.0%

Source: U.S. Bureau of Labor Statistics, 2017 annual Quarterly Census of Employment and Wages data.

Employment Forecast

Relative energy sector sizes as measured by GDP in 2016.


Percent of Region GDP Percent of Industry GDP in US

RegionOil and Gas Refining and

Chemical Manufacturing

Oil and Gas Refining and Chemical Manufacturing

Alabama0.2% 2.8% 0.2% 1.1%

Louisiana3.7% 14.3% 4.4% 6.6%

Mississippi0.5% 3.4% 0.3% 0.7%

Texas6.8% 5.7% 54.5% 17.6%

Gulf Total5.5% 6.2% 59.4% 26.1%

US Total1.1% 2.8% 100.0% 100.0%

Source: U.S. Bureau of Economic Analysis.

Employment Forecast

Louisiana Upstream


Employment Forecast

Texas Upstream


Employment Forecast

Louisiana Refining and Chemicals


Employment Forecast

Texas Refining and Chemicals


Employment Forecast


Conclusions

Conclusions


• U.S. and Gulf Coast domestic crude oil and natural gas production should continue to be strong.

• The nation and region will build upon existing productivity gains. • Drilling activity may start to geographically diversify, but not enough to knock the

Permian basin off its perch as being the premier U.S. unconventional basin.• The overall “cool-down” in crude oil demand should allow infrastructure development

to catch up with production requirements.• “Quality over quantity” mentality by larger companies. Drilling responsiveness has

changed in the last recovery period, being more tepid given investor expectations about balance sheet improvement versus drilling (capital budgets are flat).

• The price outlook (crude oil, natural gas) is a little more complicated than last year.

• Last year’s issue was the resilience of shale production to the price drop. • 2017 saw crude prices rise (natural gas flat). Market has now shifted to correction

mode (crude oil) given changing expectations. • Crude prices will stay relatively low (recent oil/gas price decoupling was short lived).• Next year, the issue will be economic growth and the corresponding issues of Fed

tightening, exchange rates, inflation, and fiscal stimulus.

Conclusions

Conclusions


• The 2019 GCEO petrochemical industry outlook is flat.

• The capacity utilization outlook for existing and recent investments will likely not increase in any measurable fashion given a number of global headwinds that include: (a) a slow-down in Asian demand; (b) increased dollar valuations; and (c) continued trade policy uncertainties.

• The GCEO does not anticipate any chemical industry or LNG project cancellations, but it is not implausible to see that many currently-announced projects move out their anticipated project commercial operation dates in order to account for the current global market and geo-political uncertainties.

• The 2019 GCEO sees a continued positive, yet limited growth outlook for U.S. refining. Refineries will benefit from continued growth of U.S. crude oil supplies and the geographic diversity of those supplies. The sector will also benefit from continued pipeline infrastructure moving into and within the region. Product demand growth and storage will be the top issues to watch.

Conclusions

Conclusions


• Thus, on an overall basis, the GCEO anticipates, on average, that the region will build upon its economic gains of the last year, although those gains will likely be slower due to concerns about economic growth and several geopolitical tensions that create uncertainties that are not conducive for capital formation and growth in this industry.

• The region will continue to become a more integrated part of the overall world energy market and will likely place itself in a favorable position for future growth once some of these uncertainties start to evaporate.

• The GCEO sees regional employment continuing to grow over the next year in both the upstream and downstream sectors for both Louisiana and Texas.

• Louisiana upstream growth has been tempered considerably from last year’s projections.

• For Louisiana, there is more employment in refining and chemicals than upstream and we anticipate this to continue but on slower basis.

• In contrast, Texas still employs approximately two workers in the upstream sector for every downstream employee whereas in Louisiana this is more like a one-to-one relationship.

Conclusions

Thank You!!


Gold

Silver

Bronze


2019

David E. Dismukes, Ph.D. • Gregory B. Upton, Jr., Ph.D.Dek Terrell, Ph.D.

gulf coast energy outlook 2019 - louisiana state university · 2014 2015 2016 usd per barrel...

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