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Gulf Coast industrial development: overview of trends and issues.

David E. Dismukes, Ph.D.Center for Energy StudiesLouisiana State University

Gulf Coast Power Association Meetings, New Orleans, Louisiana, February 8, 2018.

Industrial Development

2© LSU Center for Energy Studies

Gulf of Mexico capital expenditures.

The continued low natural gas price outlook has facilitated considerable development of over $318 billion: $155 billion will be spent in Louisiana and $162 billion in Texas.


Billio

n $

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

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

Louisiana Texas

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.

Development

Gulf of Mexico total capital expenditures by sector.

The continued low natural gas price outlook has facilitated considerable development of over $318 billion: $100 billion already completed, $218 billion remaining, but heavily

concentrated in LNG export facilities.


Billio

n $

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

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

LNG Export Cracker/Polymer Methanol/Ammonia Other


Development

Louisiana projected capital expenditures, then and now

Capital expenditures to date have exceeded early estimates. Projected expenditures for Louisiana 2012 were estimated to be $53 billion (through 2017); however actual

expenditures are closer to $67 billion, a difference of almost 30 percent.


Billio

n $

$0

$5

$10

$15

$20

$25

2012 2013 2014 2015 2016 20172012 Estimate Current Estimate


Development

Industrial investment dynamics


Development

All of the industrial development to date has arisen in order to(1) serve global, not North American, markets and (2) leverageaffordably-priced unconventional natural gas supplies.

MethanolOlefins

Ammonia

LNG ExportsGTL Exports

US GOM industry competes with other places in the world that rely more heavily on crude

oil-based feedstocks

Provide a substitute fuel source (natural gas) to crude oil – trades at a value pegged to

crude oil prices.

The economics of both sets of infrastructure are verydependent upon the differentials between crude oil and naturalgas prices – not their absolute level, but their differential.

Natural gas and crude oil prices


-$20

$0

$20

$40

$60

$80

$100

$0

$20

$40

$60

$80

$100

$120

$140

$160

Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

Natural Gas Price Crude Oil Price Differential

$ pe

r BO

E

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

Differential ($ per BO

E)

Source: U.S. Energy Information Administration.

Development

0

20

40

60

80

100

120

140

Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17Note: 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; and U.S. Energy Information Administration.

Cur

renc

y U

nits

per

U.S

. $

Dollar valuations (Federal Reserve Broad Index)

8

The dollar is up relative to the currencies: 20 percent appreciation over last six years, most of which was between 2014 and 2016.

© LSU Center for Energy Studies

Development

0

2

4

6

8

10

12

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

Annu

al P

erce

nt C

hang

e, G

DP

Projections

Source: International Monetary Fund.

Development

Development v. Output


U.S. Industrial Production Index


100

101

102

103

104

105

106

107

108

Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17

Indu

stria

l Pro

duct

ion

Inde

x

National industrial production is on the rise since the 2016 slump.

Source: Federal Reserve System.

Output

40

45

50

55

60

65

70

75

80

1990 1995 2000 2005 2010 2015

Industrial electric generation, Louisiana and Texas


Industrial electric generation in Louisiana and Texas has increased by 14 percent, or two percent per year (on average) over the last five years.

Milli

on M

Wh


Output

100

110

120

130

140

150

160

1990 1995 2000 2005 2010 2015

Industrial electric retail sales, Louisiana and Texas


Gulf coast industrial retail electricity sales have increased by as much as 20 percent over the last five years.

Milli

on M

Wh


Output

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1997 2000 2003 2006 2009 2012 2015

Industrial natural gas sales, Louisiana and Texas


Industrial natural gas sales fell for over a decade, but turned around in 2009 and have been increasing at an average annual rate of five percent.

Tcf


Output

Changing world petrochemical economics; methanol example.

Source: Author’s construct.

1. Ammonia/Nitrogen Manufacturing

15

Low cost U.S. natural gas production will continue to expand giving the U.S. and particularly the GOM region a significant cost advantage for petchem production.

0 10 20 30 40 50 60 70 80 90 100

$ pe

r met

ric to

n

Estimated 2019 World Demand

~100 million tons

Current U.S. methanol production position, 2017

Cumulative production – million metric tons

U.S. methanol production position,

2000-2008

Output

The majority of increasing chemical imports are pharmaceuticals. Basic chemicals, resins, paints and adhesives continue to be exported. Have reach a zero net

imports/exports position with ag chemicals.

-$80

-$60

-$40

-$20

$0

$20

$40

$60

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Basic Chemicals Resins, Synthentics Fertilizers, Pesticides PharmaceuticalsPaints, Adhesives Soaps, Cleaning Other

Billio

n $

Source: International Trade Administration, U.S. Department of Commerce. 16

U.S. chemicals net exports.

Output

U.S. petroleum product imports and exports.


Petro

leum

Pro

duct

Impo

rts a

nd E

xpor

ts(M

MBb

lper

day

)

In 2011, the U.S. became a net exporter of petroleum products. Net exports have increased 360 percent since then.

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

-4

-3

-2

-1

0

1

2

3

4

5

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Imports

Exports

Net exports

Distillate Motor gasoline Other petroleum products

Output

U.S. crude oil exports.


In December 2015, restrictions on exporting U.S. produced crude oil were lifted. In 2016, the U.S. exported an average of 520,000 barrels per day and exceeded one million barrels per day in 2017. Opportunities for the U.S. to participate further in global crude oil exports are

considerable, and the Gulf Coast will be the beneficiaries of these opportunities.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Jan-2000 Jan-2003 Jan-2006 Jan-2009 Jan-2012 Jan-2015

Thou

sand

bar

rels

per

day

Thousand barrels per day0 100 200 300 400

Rest of WorldColumbia

ItalyUK

Japan & KoreaNetherlands

ChinaCanada

Export Destinations


Output

Conclusions


Estimated electricity demand from new industrial projects, Louisiana and Texas

The cumulative electric load from new industrial projects could reach about 13,500 MW by 2022; and annual natural gas use could reach close to 3,500 Bcf.


(MW

)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2015 2016 2017 2018 2019 2020 2021 2022Electric Demand Natural Gas Demand

(Tcf)Conclusions

Handicapping 2018-2019 industrial development.


Conclusions

Factor Bullish Bearish

Crude oil prices Price build (over $70/Bbl) Price maintenance ($60/Bbl-$65/Bbl)

30% 70%

US natural gas prices Price build (over $3.50/Mcf) Price maintenance ($3.00-$3.50/Mcf)

5% 95%

Global economic growth Building strength Weakness

75% 25%Global commodity prices Price maintenance Strong build

60% 40%

Exchange rates Dollar depreciation Dollar appreciation

50% 50%

Interest rates Low longer term rates Building longer term rates

10% 90%

Federal energy/environmental regulations Continued lightening Retrenchment

90% 10%

State policies (LA) Removing uncertainty Increasing uncertainty

10% 90%

Potential 2018-2019 Impactson Gulf Coast Industrial Development

Questions, Comments and Discussion.


David E. DismukesProfessor and Executive DirectorCenter for Energy StudiesEmail: [email protected]

Phone: 225-578-4343

URL: www.enrg.lsu.edu

Conclusions

mailto:[email protected]

http://www.enrg.lsu.edu/

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