By Lori LeBlanc, LMOGA Offshore Committee Director
for BIC Magazine
Falling oil prices. Punitive federal regulations. Massive layoffs. Business closures. Severe budget cuts. When it comes to the state and local economy, and our home-grown oil and gas industry, the headlines in 2016 generally have not been pleasant. In the Houma/Thibodaux MSA, for example, a loss of 15,000 jobs from 2015-2017 has been predicted. Needless to say, this year has been tough for thousands of Louisiana workers, businesses, and communities, not to mention our own state government.
A new year brings hope, however, and there is good reason to believe that in 2017 we will see light at the end of this tunnel with renewed production in the Gulf and an uptick in crude oil prices. This won’t magically erase the losses we’ve experienced over the past two years, but it may get us on the road to recovery, and that’s a road we all want to be on right now.
Here’s a look at some of the issues that shaped our oil and gas industry and south Louisiana communities during the past year, and the expectations we have for 2017:
Crude Oil Prices
Increased production by OPEC nations like Saudi Arabia and increased shale production in the U.S combined with lukewarm global demand cut the price of oil in half from 2014 to 2015 ($98 per barrel down to $52 per barrel). That slide continued in 2016 with prices hitting a low of $26. A proposal by OPEC to cap global oil production helped raise prices to a one-year high of $53 in early October, and as of this writing, prices have dropped slightly below that. In a recently published report for the South Louisiana Economic Council, economist Dr. Loren Scott predicts oil averaging $53 a barrel next year and $60 in 2018, which would be welcome news for our local economy.
Oil prices aren’t the only factor impacting our region’s path to economic recovery, however. An onslaught of new regulations issued by the current Administration over the past year are making it increasingly more difficult and less financially prudent for producers to invest in Gulf of Mexico oil and gas development. In 2016 alone, we have seen the far-reaching well control rule issued, a new air rule proposed, and the issuance of new financial assurance requirements related to decommissioning wells, all of which are exceedingly costly. The cumulative impacts could force some smaller operators out of business while driving other operators out of the Gulf of Mexico to explore for oil in other parts of the world. Future regulatory decisions will lie in the hands of America’s next President.
Gulf Energy Production
According to the U.S. Energy Information Administration, Gulf oil and gas production is expected to average 1.79 million barrels per day (b/d) in 2017, reaching a peak of 1.91 million b/d in December 2017, even if crude oil prices remain low. That’s an increase of ten percent from the predicted average of 1.63 million b/d this year, and 24 percent higher than 2015. By 2017, oil production in the GOM is forecast to represent 21 percent of total U.S. crude production, up from 18 percent this year, as a result of six new deepwater production platforms expected to go online in 2016 and 2017. As Dr. Scott has pointed out, just a modest improvement in crude oil prices and an improvement in costs now associated with unreasonable regulations could increase Gulf activity, with the jobs and economic spark that comes with it.
The Louisiana Mid-Continent Oil and Gas Association and its Offshore Committee are committed to supporting oil and gas development and the companies that invest in our Gulf because we recognize the tremendous impact a healthy industry has on our state and nation. We wish you and your family a healthy and prosperous 2017!