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At LAGCOE, Energy Industry Looks for a Way Forward

Oct 27, 2017 / News

LAFAYETTE — An event in Lafayette this week had a lot to do with the future of St. Mary Parish because it has a lot to do with the future of the energy industry.

One thing is clear: The future isn’t clear.

The event was the Louisiana Gulf Coast Oil Exposition, better known as LAGCOE. Every two years, LAGCOE brings hundreds of energy industry exhibitors to Lafayette for a combination sales mart, convention and navel-gazing.

This year’s LAGCOE ended Thursday, but at mid-afternoon the exhibitors who packed the Cajundome floor and ringed its exterior with booths and demonstrations were just starting to pack up.

These exhibitors aren’t, by and large, the Exxons and BPs of the industry. The vendors are the companies that build the valves and vertical separators, make the metal mats that allow offshore workers to walk safely on platforms, invent new cleanup and environmental protection technologies, and sell all the other products and services that keep the oil pumping.

There are also formal discussions about the industry’s future by politicians, academics and industry executives. As you might expect, some of the discussions had a touch of gloom.

Much as natural gas prices plunged a decade ago, crude oil prices plummeted from $100 per barrel in mid-2014 into the $30s. Prices have since recovered to near $50, still far below what companies said as recently as two years ago that they need to break even.

The reason for the price decline is the same as it was for natural gas: New techniques, primarily horizontal drilling and hydraulic fracturing, have led to a huge increase in oil production in the United States and around the world.

If St. Mary people know anything, it’s what happens when oil prices drop.

Nationally, oil and gas extraction employment fell from 200,900 in October 2014 to 181,000, in September 2017, according to the U.S. Bureau of Labor Statistics. In Louisiana, the decline has been steeper: from about 61,00 in autumn 2014 to about 41,000 last month.

In St. Mary, where nearly 2,500 people worked in the mining sector in fall 2014, a little more than 1,900 were employed in the first quarter of this year.
The effects here have been felt beyond the people who have energy-related jobs. We’ve reported that more than one St. Mary job in five has disappeared in three years. Collections of sales taxes have plunged, too, forcing local governments to tighten their budgets and put off infrastructure work they’d like to do.

We’ve been through this before, notably in the 1980s, and in a smaller way around 2000. But there’s something distinctly different about this bust.

It’s also a boom.

Ever since the Arab oil embargo of 1973, politicians have talked about the need to be energy independent. We shouldn’t depend on unstable and sometimes hostile foreigners for the fuel that runs our economy, they said.

When those new techniques came along, energy independence began to seem possible.

Remember September 2011, when then-U.S. Rep. Jeff Landry, now the state attorney general, sat at a speech by President Barack Obama and held up a sign that said “Drilling = Jobs”? In that month, according to the U.S. Energy Information Administration, the United States was producing about 168 million barrels of oil a month.

By December 2014, about the time prices started falling, production was up to 293 million barrels. The total fell along with the price of crude, but by July 2017, we were still producing 286 million barrels a month.

Oil imports have fallen 30 percent in a decade, according to the administration.

So the macro problem, our dependence on overseas oil, appears to be on its way to being solved. Most of the big oil companies are raking in big profits, too.

“We’re delivering higher production with lower capital and operating expenditures,” said Chairman and CEO John Watson at Chevron, where second-quarter earnings showed a $3 billion improvement over 2016.

When inland oil production becomes profitable, even with relatively low prices, the $1 billion investment required for a deep-water energy platform for the Gulf doesn’t look attractive. The industry focus shifts from the Gulf to the Dakotas, Ohio or wherever shale can be tapped for oil, aggravating the economic dislocations felt in places like St. Mary.

Analysts seem to agree that in addition to the cost-cutting measures, the top companies are prospering because they don’t depend solely on bringing oil out of the ground. Even within the industry, they’ve diversified.

There’s a lesson there for our parish as we move forward into an uncertain future.

Bill Decker | The Daily Review