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LCA’s Borne Speaks at BR Press Club

LCA President Dan Borne spoke at the Baton Rouge Press Club luncheon on Monday, September 29. Below are notes from the Harris DeVille & Associates memo update. 

"Louisiana Chemical Association President Dan Borné spoke to the Press Club of Baton Rouge yesterday and discussed the “petrochemical gold rush” in Louisiana and the history of the industry that spawned the “tsunami of investment.” Following are some of his observations from notes taken by HDA Associate Ginny Martinez:

His litany began in 1901, when oil was discovered in Jefferson Davis Parish, and not long after, commercial quantities of natural gas were discovered around Monroe. With those discoveries came the evolution of a system of infrastructure, eventually creating pipelines and barge facilities needed to fuel the refineries, the first of which was built in 1909 – Standard Oil (now Exxon). Then World War II moved the state’s manufacturing economy into wartime production. The state produced tetraethyl lead, high-octane aviation fuel and greases and oils that moved the engines of the Higgins boats. That growth put the state on a trajectory to be prosperous when the soldiers came home.

Borné continued by saying growth in the 1940s through the 1960s was led by former Gov. John McKeithen and his law school roommate, U.S. Sen. Russell Long. At the time, Louisiana had the fifth best economic development ranking in the country. To improve that ranking, Long led the charge on passing Right-to-Profit laws in the state, which provided natural gas rebates. At the same time, McKeithen was traveling the world and inviting companies to move to Louisiana. In the late 1980s, sulfur, on which Sicilian cartels had a worldwide monopoly, was discovered in the cap rock of salt domes in southwest Louisiana.

In the late 1990s, natural gas became very expensive and hard to get. The lack of this basic raw material “threw all that earlier expansion into doubt.” Of note, the ammonia and methanol industries all but disappeared from the state. From 1999 to 2009, the number of plant workers decreased from 34,000 to 24,000, and vendors and other support member companies dropped from 1,000 to 400, according to the Louisiana Chemical Industry Alliance. Plants began to shut down and relocate overseas. The country had 50 liquefied natural gas import terminals in planning stages. “Nobody predicted the impact shale gas would have on the economy,” Borné said. “It was an economic miracle.” Four existing LNG import terminals have moved toward approval to switch to export, along with many other greenfield LNG export projects. Now the region is facing $90 billion in industrial investments, which are outlined in the attachment.

“This is a tremendous opportunity for the Gulf Coast,” Borné said. Whenever the price ratio of oil to natural gas reaches 7:1 or greater, “the Gulf Coast can beat the socks off the rest of the world when it comes to doing what we do with natural gas.” The current ratio is around 25:1 ($100/barrel oil and $4/mmBTU natural gas). He said 95 percent of the state’s ethylene, a basic building block, comes from natural gas. The rest of the world has to crack a barrel of oil to get to that material.

“What we are facing is likely to be the most intensive period of investment in a region in the history of America,” Borné said, urging both optimism and realism. “We didn’t know five years ago there would be a fracking miracle. What do we look out for in five years?”

There will be continued and tremendous pressure on the demand for natural gas, particularly as a feedstock for industrial facilities. Methanex, which had left the state to move to Chile, is now moving back production “bolt by bolt, pipeline by pipeline.” As ammonia, ethanol and gas-to-liquids facilities return, feedstock demands will continue to grow. The second part of that demand curve is coal displacement. The Obama administration has taken a “not ambivalent” look at the coal industry and is moving toward fewer coal-fired power plants, which will further increase the demand on cleaner burning natural gas. The industrial resurgence will see organic utility growth as well. Borné suggested energy providers look at their overhang – the excess power generated – to determine if it will accommodate the additional demand from these facilities. Another demand driver will be the increased use of natural gas vehicle fleets. “That’s an insignificant piece right now, but it could generate tremendous demand,” he said.

“Where there is demand, there is supply. Sometimes they meet, and sometimes they diverge,” he said. Supply concerns include water use issues with regard to getting gas from shale deposits, increased seismic activity around shale plays, distribution/infrastructure issues and a growing Not In My Back Yard attitude, as evidenced by recent opposition to hydraulic fracturing in St. Tammany Parish. Additionally, the more stringent federal ozone standard could have a negative impact on investment, particularly if the Lake Charles area gets out of compliance. Industry is looking at modeling to recommend tweaks to EPA credits trading programs, regarding which emissions can be traded and whether stationary emitters could benefit from credits purchased from nonstationary emitters, to mitigate proposed changes.

As always, infrastructure and labor cost and availability will be an issue during this time of industrial expansion. The Louisiana Community and Technical Colleges System is interviewing more than 200 stakeholders to develop a strategic plan to address the “severe craft and trade shortage.” Borné said, with a natural phase-in of projects, it is hopeful the state will be able to provide enough skilled workers to accommodate the expansions.

He “begged to differ” with the perception that the petrochemical industry caused infrastructure problems; “they’ve been here for quite some time,” he said. He advocated for a comprehensive, aggressive infrastructure plan for roads, bridges and ports, as well as a consensus on a funding mechanism to address the shortfall. “It must be addressed. If it means paying a toll, I’m willing to do it. I want to ride on Class A highways in a car and not in a hearse. We can get a lot done in a short time with a new administration and a new Legislature,” Borné said. He did not fault the existing government, saying they have been very supportive of getting industry here. “We’ve got to fight for every dollar; we’re fighting a giant across the Sabine River,” he said.

“Companies in America don’t sit around the table and divvy up who builds what next. There’s no central planning of industrial development like in some other countries. Here, that’s called anti-trust,” he said, adding that “first-to-market” commodity production changes boardroom decisions around the world. The potential for international shale plays will be a factor. Europe is “full of shale,” but faces major political issues over mineral rights. Some countries want to drill because they don’t want to do business with Russia. The general infrastructure found here does not exist there to move the product. “But how many countries are going to be importing natural gas at really high prices and realize they have a genie in their back pocket?” he asked. See enclosures.

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