U.S. Energy Renaissance

December 10, 2012

An interview with David E. Dismukes, associate director, Center for Energy Studies, Louisiana State University

Mike Chriszt: With us today is Dr. David Dismukes, associate director of Louisiana State University’s Center for Energy Studies.

David, we’ve heard all kinds of information and intelligence from our business contacts about what a game-changing event this additional find of natural gas and, of course, the products that are refined from that have on not only the regional economy, the national economy, almost, you can even say, the global economy. In your opinion, how did that come about and does it have staying power for the U.S. economy?

David Dismukes: One of the best solutions for high prices is high prices. And as we went through the early part of the last decade with relatively high natural gas prices, you had a number of innovative and entrepreneurial oil and gas companies going out, trying new methods of extraction from resources that had heretofore not been explored, which were namely the shale resources. Putting that know-how and capital together and taking those risks in that high price environment actually yielded successful output.

You see high prices right now in crude oil markets and that has, over the last several years, also sent signals to these oil and gas developers to start moving in these liquids and crude oil markets, and now we are, kind of, starting that process all over there again.

Chriszt: Previous to these additional finds, a lot of the natural gas and oil extraction was happening along the Gulf Coast and somewhat out West. But now as you said, we’re seeing it all over the country. How have companies, especially in southern Louisiana, taken advantage of that? Are they involved in those activities in other parts of the country out of exporting, if you will, their expertise to other parts of the United States?

Dismukes: They are. Not only are we exporting the gas from the Gulf Coast region, from these unconventionals in Barnett and Haynesville. But you’re seeing service companies, drilling companies, independent oil and gas companies moving into these areas where historically we haven’t had production in over a hundred years—like in the Marcellus in Pennsylvania. So there’s a lot of outflow of people going back and forth between the Gulf of Mexico and up into those communities in the Marcellus region. It’s not only that. It’s the gas, the know-how, a lot of things are coming from the Gulf and going into these areas.

Chriszt: As far as international opportunities go, we talked about how companies in Louisiana, for example, have expertise in not only the exploration but extraction of these new finds. Other parts of the world, do they have the same geology that we can export our technology and our expertise to? And what are the implications of that long term?

Dismukes: That’s an interesting question that I don’t get asked often. Our industries are the ones that have most of the technical know-how, the equipment, and the opportunities for extracting these resources from these plays. They are exporting that to other countries around the world. And they are actually making the capital investments in many of those places around the world to develop those resources. In addition to that, you’re seeing companies, international companies, come to the United States, enter into joint ventures with U.S. companies with the prime intention of learning how this extraction process works and how they could eventually export that to their own countries and use it there, particularly with China.

Chriszt: Let’s talk about the work forces of some of these companies. Have firms been able to expand their employment based on these new opportunities? And is it not only in the exploration, but are they expanding current operations, expanding refineries?

Dismukes: Well, we’ve seen big employment expansion, as you can imagine, in the upstream part of the business. If you look at the trends in employment from states that have these unconventional resources versus those that haven’t during the course of the recession and on, you just see an amazingly divergent trend. If you index those and look at those between the employment increases in those states with the unconventional resources versus those that have not, it’s quite dramatic.

But as you suggest, too, it’s not just in the E&P [exploration and production] activities. We’ve seen a lot of expansion in investment and employment opportunities in the midstream part of the business of new gas processing facilities. We’re finding gas in areas that we didn’t necessarily have the existing infrastructure there to support. So we’re building new pipelines. And then as we move down into the downstream portions of the business, this has been a great opportunity for lowering costs for a set of industries that are very dependent upon energy. And we’ve seen a large number of investment announcements over the last 12 to 24 months, and they keep coming out every month as these opportunities continue.

Chriszt: Let’s talk a little bit more about the manufacturing side of things. We’ve heard that this access to cheaper energy might lead to companies that had shifted operations overseas over the past couple of decades, maybe altering their cost structure to such an extent that they could bring manufacturing back to the United States. What’s your thought on that, and are you actually seeing anything happening in that regard?

Dismukes: Well, I agree, and we’re in the beginning stages of seeing that happen. The wage differentials between countries are starting to tighten, particularly in Asia, in China. As you recall, it wasn’t too terribly long ago, 2005, before, where many of these petrochemical facilities were making announcements to build abroad. The remaining ones who were left were going to be anticipated to take their gas supplies from liquefied natural gas from imports. That outlook was not very good. All that new incremental capital investment was looking like it was going to go either in the Middle East or in Asia. Today what we’re looking at now is a lot of that incremental capital investment coming back here into the United States, particularly on the Gulf Coast.

To date, based on some of the research that we’ve done, we’re looking at about $50 billion in new CAPEX [capital expenditures] in Louisiana alone across a variety of different sectors. And that’s CAPEX that we can directly attribute to low natural gas prices. So all the skill crafts and traits that go into industrial construction will be impacted significantly by this. There will be huge opportunities on the Gulf Coast for construction-oriented jobs in many of these areas. Craftsmen, electricians, welders, etc. in those areas are going to be important as well. We’re going to see a lot of need in the professional level as well, particularly in the engineering disciplines but also in the environmental sciences areas.

Chriszt: Is this going to lead to energy independence for the United States?

Dismukes: Well, I doubt it. And I’m not a real big believer in the independence issue so much as I am the energy security. And I would argue that from an energy security perspective, though, this puts us in a much more advantageous position than we’ve probably been historically, or at least going back to the turn of the last century. I think the International Energy Agency just in the last month or so has forecasted that the U.S. would be a net exporter by 2030. So there are opportunities.

I think the takeaway in this is that we’ll have access, confident access, to our own supplies here in the United States, as well as North America. The developments that are going on in Brazil, Argentina, the continual development of resources in Canada, for instance, in unconventionals, both crude and natural gas—it creates great hemispheric security for us as well as national security. We will still be part of a bigger, broader global energy market. So from that sense, it’s incompatible to say independence and then be integrated in that market. But when you think about security, and security of supplies, and availability, then I would say yeah. We’re going to be in a very strong position, and that position continues to increase every year.

Chriszt: It’s been a real pleasure working with you in the past, and again, thanks for joining us today.

Dismukes: Thank you.

Chriszt: And thank you very much for watching.