New World for Natural Gas

The advent of low, stable natural gas prices from Louisiana’s Haynesville Shale and other similar shale plays around the country is catalyzing a renaissance in the chemical and energy industries in the U.S. Although the entire country will benefit from low natural gas prices, Louisiana has been working to position itself as the destination of choice for major, downstream projects that will utilize natural gas as a fuel and a feedstock. In just the last 12-18 months, projects representing tens of billions of dollars in new capital investment have been announced.

A unique set of assets gives Louisiana a competitive edge, including superior oil and gas infrastructure, established and emerging shale deposits, a thriving chemical sector demanding liquid feedstocks, and an intermodal transportation network that can reach national and global markets.

Topping the list is a natural gas supply that’s setting historic precedents for volume and affordability. Low, stable prices have lured new projects to Louisiana that range from a $450 million advanced biofuels refinery in Central Louisiana to a $10 billion gas-to-liquids refinery in Southwest Louisiana.

“The energy market in Louisiana now is as good as it’s been in the last twenty or thirty years,” said David Dismukes, professor and associate executive director of the Center for Energy Studies at Louisiana State University. “The difference now is that we have all kinds of new opportunities, both upstream and downstream.”

With natural gas prices falling and a robust chemical corridor likely to buy natural gas, the conditions in Louisiana are favorable for new kinds of energy expansion, said Tommy Kurtz, executive director of LED’s Business Expansion and Retention Group. “We’re seeing three dynamics at work: continued drilling, value-added production for manufacturing facilities and for export, and downstream chemicals production,” he said.

In the past decade, the state’s well-established conventional oil and gas sector was rounded out with substantial, unconventional natural gas onshore holdings in north Louisiana. The Haynesville Shale play emerged as a significant finding after 2005 and remains one of the largest shale plays in North America and the world. It contains more than 250 trillion cubic feet of natural gas.

In the U.S., shale plays collectively hold enough fuel to sustain domestic energy needs for the next century, and advancements in recovery – such as horizontal drilling and hydraulic fracturing – have made it possible to extract these resources.

The Haynesville Shale play has sparked more than $10 billion in new business sales within the state, according to Louisiana economist Loren Scott. Drilling activity here increased 180 percent from 2005 to mid-2010, and production increased 412 percent from 2005 to the end of 2011, says Dismukes.

Additional shale plays recently emerged elsewhere in Louisiana. The Tuscaloosa Marine Shale is a large unconventional resource that spans Central Louisiana to Southwest Mississippi and is believed to have generous reserves of crude oil and other liquid hydrocarbons. Conservative estimates from the Louisiana Geological Survey place the reserve potential at 7 billion barrels. Additionally, the new Smackover/Brown Dense Shale development in North Louisiana presents new opportunities for exploration and production.

These findings – coupled with Louisiana’s strong oil and gas infrastructure, transportation network, and favorable business climate – have attracted foreign direct investment in the billions and have ushered in a period Dismukes calls “the second phase of Louisiana’s shale history.”

In July 2011, Cheniere Energy Inc. announced plans to build one of the first natural gas liquefaction facilities in North America at Cheniere’s Sabine Pass import terminal on Louisiana’s southwestern border. With natural gas prices lower, Cheniere saw the opportunity to expand the terminal into a two-way facility capable of exporting liquefied natural gas to the global market in addition to receiving LNG for regasification. The new project will bring an investment of $6.5 billion – one of the biggest in Louisiana’s history – and will create 148 new direct jobs. The project also retains 77 positions. 

“Our liquefaction project will provide thousands of (direct and indirect) jobs in Southwest Louisiana while connecting the state’s natural gas industry to global markets, making Louisiana the world’s first dual importer and supplier of LNG,” said Cheniere Chairman and CEO Charif Souki. 

In September 2011, South African energy giant Sasol Ltd. selected Calcasieu Parish, La., as the location for a planned gas-to-liquids, or GTL, complex. The company already had relocated its R&D headquarters to Calcasieu Parish and established the world’s first commercial ethylene tetramerization unit there. The new project would cost approximately $10 billion and would yield 850 direct and 4,000 indirect jobs.

Two months later, Sasol announced a related project in Louisiana. The company reported it would explore construction of a $3.5 billion to $4.5 billion ethylene production site beside the GTL facility. A feasibility study is under way.

A world leader in converting natural gas to clean-burning liquids, Sasol can provide GTL fuel for manufacturing facilities and fleet vehicles. Unlike compressed natural gas, GTL fuel does not require significant infrastructure changes to vehicles or fueling stations. Sasol operates other GTL sites, but its Louisiana project is the only one linked to a company facility that produces and exports downstream chemicals.

“In all of our other GTL plants, we’re only looking at producing fuels,” said Mark Schnell, director of New Business Development for Sasol North America. “Here, we are looking at producing other downstream chemicals, which underscores what a great opportunity we see here to establish an integrated project.”

Sasol Public Affairs Manager Michael Hayes adds that Louisiana’s historic participation in the petrochemical sector means the state has a strong workforce pipeline of engineers, research scientists and related fields.

“We’re going to need a lot of these people,” he said. “And the state has tremendous resources in this regard.”

In the second quarter of this year Sempra Energy announced it had secured the company had secured its third and final commercial agreement to develop a $6 billion natural gas liquefaction export facility at the site of its existing Cameron LNG terminal in Hackberry, La. The project will create 130 new direct jobs, while retaining 60 existing positions. The project is also expected to generate an estimated 610 permanent new indirect jobs, as well as 3,000 construction jobs at peak activity.

Said Octavio M.C. Simoes, president of Sempra Energy’s LNG operations, "This project will bring extensive economic benefits to the region, the country and support the continued growth of our natural gas industries as well as international gas markets."