Thursday, May 30, 2024

Analysts expect Louisiana oil and gas sector to shrink or pivot to clean fuels this year

by BIZ Magazine

By Wes Muller, Louisiana Illuminator

Louisiana’s oil and gas industry is expected to shrink slightly this year due to a combination of economic and geopolitical factors, experts who follow the sector say, though they also forecast potential growth in the new energy and industrial sectors.

Most analysts are predicting some kind of economic slowdown during the first half of 2023. Oil and gas companies saw record-high profits in 2022 from a surge in demand as most of the world recovered from the coronavirus pandemic and nations shifted their energy policies to address Russia’s invasion of Ukraine. Exxon earned a record $20 billion in profit for the third quarter of 2022. Shell and TotalEnergies reported their profits more than doubled in the third quarter from the same period the year before.

While refineries have increased production to meet demand, many drilling and exploration companies are investing cautiously. According to the professional service firm Deloitte’s “2023 Oil and Gas Industry Outlook,” many companies have prioritized paying their shareholders and saving up cash as economic uncertainty grows and energy prices continue to swing. 

Gasoline prices, which peaked at $5 per gallon in June, have since fallen across the U.S. and remained below $3 per gallon in Louisiana as of Thursday, according to AAA’s gas price tracker. Also Thursday, U.S. natural gas prices reached their lowest mark in more than a year as unusually warm winter weather continues to dampen demand. 

Continued downward pressure could cancel drilling plans for areas such as the Haynesville Shale play in northwestern Louisiana, LSU energy sector economist David Dismukes said.

“It’s looking like we’ll see some kind of economic slowdown in the first and second quarter, which is going to dampen what small amount of drilling interest is out there,” he said.

Instead, Louisiana’s oil and gas companies will likely pivot their investments to the clean energy transition with the help of federal incentives, Dismukes said. 

President Joe Biden’s Infrastructure Investment and Jobs Act (IIJA) has a wide variety of tax breaks for companies to invest in energy initiatives such as clean hydrogen fuel and carbon capture.

Dismukes said some of the proposed liquified natural gas (LNG) export terminals in Louisiana might incorporate carbon capture technology in an effort to leverage federal incentives.

“A lot of spending opportunities in the IIJA will help facilitate that,” Dismukes said. “Clean hydrogen initiatives will be something else that will take off and probably be pretty big.”

Deloitte made a similar prediction in its report, noting that the volume of natural gas certified as “low carbon” increased 100 times in the last year. LNG exporters have signed contracts with suppliers to deliver cleaner gas, and at least three proposed U.S. LNG projects have announced plans to build carbon capture facilities to produce lower-carbon LNG exports, the report said.

As for renewable energy sources such as offshore wind, Louisiana could see some interest in lease agreements but will likely not see any major projects begin this year as the sector remains hampered with supply chain woes and inflated costs for parts, Dismukes said. 

Overall, the situation may even help the oil and gas industry achieve its climate goals, he added. 

“I think we’ll see healthy progress on reducing emissions,” Dismukes said. “How much and how fast is what I can’t tell you…but this next year is going to be an important year.”

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