This past November, the LSU Center for Energy Studies released its second Gulf Coast Energy Outlook.
The full publication, which is available on the CES website, provides a year-end retrospective on energy industry activity and a 2019 forecast for the entire Gulf Coast region.
Overall, the 2019 outlook for the Gulf Coast’s energy industries is a mixed bag: The potential outcomes vary depending upon the individual energy sector being examined.
U.S. and Gulf Coast domestic crude oil and natural gas production should continue to be strong.
The nation and region will build upon existing productivity gains and reasonable overall prices will continue to sustain some drilling activity. This drilling activity may start to diversify, in terms of location, over the upcoming few years, but not enough to knock the Permian basin off its perch as being the premier U.S. unconventional basin.
OCS production should also be strong; however, drilling activity will likely stay in the 20 or so active rig count range for the immediate future. Overall, the Gulf Coast will continue to account for over half of U.S. crude oil supplies and make an important contribution to overall global energy supplies.
U.S. crude oil production is anticipated to continue to rise to 12.9 million barrels per day by 2020. Gulf Coast production is forecast to rise to 8.4 MMBBls/d by 2020.
Near-term pipeline constraints are anticipated to limit the degree to which Permian production will exceed forecast levels, and if the region does exceed the anticipated GCEO baseline outlook, it will likely be due to increased production in other basins within the region, particularly the offshore OCS.
U.S. natural gas production is anticipated to rise to 97.8 billion cubic feet per day, whereas Gulf Coast natural gas production will increase to 38.0 BCF/d, both by 2020. Regional natural gas output will be heavily skewed towards associated gas production, and continued crude oil production growth should facilitate a well-supplied natural gas market for both domestic use and LNG exports.
The outlook for prices (crude oil, natural gas) is a little more complicated given economic, financial, and geopolitical risks and uncertainties.
Early in October 2018, several analysts were forecasting crude oil process that would rise to around $90 per barrel.
The corrective events of mid-October, started by a streak of economic and financial uncertainties make that 2019 outlook of $90/Bbl extremely unlikely given: (1) a slow-down in Asian demand; (2) continued lackluster energy demand growth in Europe; (3) increasing U.S. interest rates; (4) increased dollar valuations; (5) the potential for additional U.S. supplies to hit the world markets; (6) potential near-term sanction exemptions on Iranian supplies; and (7) supply coordination between Saudi Arabia and Russia.
Future crude oil prices, therefore, should rebound some from their relatively low levels to about $55/Bbl for West Texas Intermediate and about $63/Bbl for Brent through the better part of 2019. Natural gas prices are anticipated to remain stable in a range of $2.50 to $3 per MCF. Low natural gas prices are the result of continued large volumes of associated natural gas coming out of oil plays like the Permian basin.
The 2019 GCEO petrochemical industry outlook is flat.
The capacity utilization outlook for existing and recent investments will likely not increase in any measurable fashion given a number of global headwinds that include: (a) a slow-down in Asian demand; (b) increased dollar valuations; and (c) continued trade policy uncertainties.
The GCEO does not anticipate any chemical industry or LNG project cancellations, but it is not implausible that many currently-announced projects move out their anticipated commercial operation dates in order to account for the current global market and geopolitical uncertainties.
The 2019 GCEO sees a continued positive, yet limited growth for U.S. refining.
Refineries will benefit from continued growth of U.S. crude oil supplies and the geographic diversity of those supplies. The sector will also benefit from continued pipeline infrastructure moving into and within the region.
Efficiency investments and other capital improvements made over the past several years should also increase refinery profitability. However, refined product export growth in middle distillates (jet fuel, diesel) could slow due to an anticipated global economic slow-down and higher dollar valuations.
Thus, on an overall basis, the GCEO anticipates, on average, that the region will build upon its economic gains of the last year, although those gains will likely come at a pace much slower than the past due.
The region will continue to become a more integrated part of the overall world energy market and will likely place itself in a favorable position for future growth once some of these uncertainties start to evaporate.
David Dismukes is a professor and the executive director of the Center for Energy Studies at Louisiana State University. He holds a joint academic appointment in the Department of Environmental Sciences, where he regularly teaches a course on energy and the environment.