"I am only getting a little nervous about two projects - the proposed Sasol GTL facility [not the new ethylene plant] and the proposed G2X facility - both in Lake Charles. They need a hefty difference between oil and natural gas prices to make sense."
Economist Loren Scott
What a difference a month can make. On Oct. 15, the day before he delivered his annual economic forecast in Lafayette, economist Loren Scott didn't appear too concerned about falling oil prices, which at that time had dipped to about $80 a barrel. He told ABiz he would not be adjusting the two-year forecast in his Louisiana Economic Outlook report, which had gone to press a month earlier predicting prices would average $96 in 2015 and $92 in 2016.
Scott is no longer sticking by those predictions, telling ABiz Tuesday he now believes oil prices will be in the $70-$75 range for the next two years. Oil prices early Tuesday were in the $76.50 per barrel range but fell to $74.09 on the New York Mercantile Exchange later Tuesday afternoon, their lowest level since September 2010.
Scott, however, continues to maintain that Acadiana, in particular, is well-situated to weather the decline, saying even a drop to the range of $71 per barrel should not adversely affect the Lafayette economy because operators in the Gulf of Mexico, who drive much of the activity here, would still be profitable at those levels.
But he is having second thoughts about how the decline may play out elsewhere, particularly in Southwest Louisiana. "I am only getting a little nervous about two projects - the proposed Sasol GTL facility [not the new ethylene plant] and the proposed G2X facility - both in Lake Charles. They need a hefty difference between oil and natural gas prices to make sense," he says.
Sasol Ltd's gas-to-liquids facility near Lake Charles is part of a potential $22 billion project partially green-lighted just last month. In late October the South African fuel maker announced it had given final approval to an $8.1 billion ethane cracker and derivatives complex at its existing Calcasieu Parish site.
Scott explained to Baton Rouge's Business Report earlier this week that as the price of oil falls, the gap between the price of oil and natural gas closes. If the price of oil falls to below seven times the price of natural gas, they are about equal in cost of thermal energy content, he said, and it is no longer economically advantageous to pursue some natural gas projects.
However, Scott's co-author of the LEO report, LSU economist Jim Richardson, told Business Report oil prices will have to fall more dramatically and stay depressed over a longer period of time for companies to pull out on potential investments.
The Organization of Petroleum Exporting Countries is scheduled to meet in Vienna Thursday to seek a consensus on whether and how to reduce output and stabilize prices. But The Wall Street Journal reported late Tuesday that signals sent by individual member nations thus far suggest there is little agreement on the matter, including how it would be achieved.
Read the Business Report story here.