March 7, 2013
Dr. Loren C. Scott
Loren C. Scott & Associates, Inc.
www.lorencscottassociates.com
Natural Gas
A Key Driver In Louisiana
& Its Ports
Figure 4: Price of Natural Gas
9
8
Per MMBTU
7
PGA
Low
High
2013
$3.00
$2.00
$4.00
2014
$3.10
$2.00
$4.00
6
5
4
3
2
1
1990
1995
2000
PGA
2005
PGAL
2010
PGAH
Logistical Issues
• Each hydraulic fracking stage requires:
– 300,000 gallons of water
– 200 tons of sand
• Port of Caddo-Bossier – space for firms
providing these products & services
• 20-40% of fluid solids used in fracking flow
back to the surface as hazardous waste and
require transportation to other well sites or
treatment and/or disposal sites
Subsurface water contamination?
• Significant
distance between
frac zone and
aquifer
• Proper casing &
cementing and
regulatory
oversight are
important
Fracking and Contamination of
Drinking Water
• Hydraulic fracking is subject to both
federal and state regulations
• There have been no instances of fracking
causing contamination of drinking water.
Michael Economides in Offshore
Engineer 11/11
• 2011:
– 35,000 wells drilled in U.S.
– 120,000 hydraulic fracturing treatments executed; 4
stages per well on average
– Zero cases of drinking water contamination
• 60 years of fracturing
– 1.2 million wells
– No scientific cases of drinking water contamination
Energy’s Political Influence
Has Widened Markedly
Increased Demand For Port
Services:
#1 Boom in Manufacturing
Manufacturing in general;
Chemicals specifically
Three Major Benefits to Chemical
Producers
Makeup in Louisiana
Sector
Value of Shipments*
Total
$58.2 Billion
Basic chemicals
$37.4 Billion
Resins, synthetic rubber,
artificial synthetic fibers &
filaments
Pesticides, fertilizers & other
agricultural chemicals
$7.4 Billion
Plastics products
manufacturing
Rubber products
manufacturing
$0.8 Billion
$4.6 Billion
$0.3 Billion
Price of Major Input has Declined
• Ammonia fertilizer
• From natural gas liquids like ethane we get
ethylene which is the foundation of
–
–
–
–
–
Food packaging, toys, house wares
Swimming pool liners, vinyl pipes
Pantyhose, clothing, carpets
Bottles, cups
Tires, foot ware, auto antifreeze
• Clean burning boiler fuel
Natural Gas Prices by Region
($/mmBtu)
$18
$16
$14
$12
$10
Japan LNG Import Price
$8
Europe Import Price Index
$6
Henry Hub
$4
$2
$0
3rd: Naphtha v. Ethane
• Ethylene made of
– In Europe:
• naphtha derived from oil
• Oil @ $100 $1,400 to make ton of ethylene
– In U.S.
• Ethane, derived from natural gas
• $730 to make ton of ethylene
Baton Rouge:
Chemical & Related Construction
• Westlake Chemical: $466 mm chlor-alkali in
Geismar – 100 new jobs, & expansion at site;
Construction underway 7/12
• $300 mm upgrade at Georgia Pacific
• Air Liquid – Ascension:
– $85 mm capex; 5 jobs
• DMC Carter Chambers – Baton Rouge:
– $10 mm capex; 80 jobs
Baton Rouge:
Chemical & Related Construction
• Methanex Corp-Geismar (7/12)
– Moving idle methanol plant from Chile to
Ascension Parish
– $550 mm capex; 130 new jobs; Avg salary =
$56,000; open late 2014; hiring starts before
end 2012.
– Fitch Rating says second, equal size, plant to
be moved here as well (12/11/12)
Baton Rouge:
Chemical & Related Construction
• Shintech – Plaquemine (4/12)
– New $120mm plant to make key ingredient in
latex paint; 30 new jobs
• Avalon Rare Metals – Geismar
– Feasibility study being conducted $300
million rare earth elements separation plant
– Complete study 2013-II; +175 jobs
Baton Rouge:
Chemical & Related Construction
• BASF
– New $120 mm acid plant (7/12); 11 jobs; At
engineering/ground prep phase; Ground breaking
10/12; Done by end 2013.
– Two surfactant plants; $120 mm; groundbreaking
spring ’12; end 2013-II
– Several smaller projects totaling $100 mm; 50%
chance
– Less than 25% chance on couple of mega projects
($500 mm - $1 bill); competing with TX
Baton Rouge:
Chemical & Related Construction
• Honeywell: $33 mm expansion (7/11)
– Start 12/11; end 2013; 11 new jobs
• Williams: $350-$400 mm to increase ethylene
production at Geismar plant (9/11)
• Huntsman – Geismar: (8/12)
– Commissioned engineering design study to increase size
of plant
• ExxonMobil - Baton Rouge: (9/12)
– $215 mm in facility upgrades
– State-of-the-art synthetic aviation oil blending center in
Port Allen
– Facility in Port Allen to be largest producer of finished
lubricants in the world
Baton Rouge:
Chemical & Related Construction
• SNF Polymer Project: Iberville Parish
– $362 mm capex over 5 years; 1st unit completed
fall ‘11
– 500 direct jobs & 100 contract employees (100 in
2011; 100 each additional year)
• Emerson Process Management - Gonzales
– $10 mm expansion & regional HQ; +50 jobs
– Make and refurbish valves for chemical industry
Baton Rouge:
Chemical & Related Construction
• Cf Industries – Donaldsonville (11/12)
– $2.1 bill to build nation’s largest nitrogen plant
– Finish 2016; +93 jobs
• Waller Marine – Port of Baton Rouge (3/13)
– $200-$400 mm small LNG facility
– Service supply vessels that have to start using
cleaner-burning, low sulfur diesel fuels in 2015
– 45 jobs; operational by mid-to-late 2014
Potentials
• BioNitrogen Corp. – Pointe Coupe (3/13)
– $1.25 billion in tax exempt bonds preliminarily
approved by LA Community Development
Authority;
– letter of intent signed to buy 250 acres of land next
to Pointe Coupe Parish Port
– Build 5 plants to convert agricultural waste into
fertilizer; 260 jobs
– Start construction 2014; Open 2015.
New Orleans MSA Construction
• Dow: Restarting cracker in St. Charles
Parish
– $400 mm capex ; 64 jobs; start 2013-I
• Dyno Nobel International – Waggaman
(5/12)
– Feasibility study for $800 mm ammonia
production facility @ existing Cornerstone
Chemical Company site.
– +60 new jobs; decision early 2013
Lake Charles Construction
Potential
• Sasol Gas-to-Liquids Facility
– 96,000 bbls per day of diesel, naphtha & other chemical
products; 2 stages of 48,000 each; 1st opens 2018; 2nd opens
year later
– Up to $11 -14 bill over 2013-17;Front End Engineering Design
(FEED) started 12/12.
– 700 jobs; $95 mm payroll; Feasibility study underway; due
late 2012
• Sasol Ethylene Cracker & derivatives complex
– $5-7 bill over 2013-17;
– 528 Sasol jobs + 358 contract workers; $58.9 mm payroll
– Feasibility study to be completed in late 2012.
Lake Charles Construction
Potential
• G2X Energy (1/16/13)
– $1.3 billion plant at Port of Lake Charles to
turn natural gas into gasoline
– Construction 2014-17; hiring complete by
end of 2015
– 243 jobs @ $66,500
– Final decision by end of 2013
Other non-MSA Developments
• Mosaic – St James Parish (12/12)
– FED being done on $700 mm ammonia plant
– 53 new jobs @ $83,000
– Make decision mid 2013; Construction start – 2014;
operation – 2016
• Zero Emission Energy – St. James (3/13)
– $1.3 bill ethanol plant---largest in North America--across from Nucor
– 63 new jobs @ $66,500
– Construction start 2013-IV; end mid-2016
Other non-MSA Developments:
Potentials
• Shell Gas-to-Diesel Refinery (4/12)
– $10 billion plant; feasibility study underway: TX v
LA
– 2 years to develop detailed engineering plans to
determine if feasible
– Between LA & TX; One of two parishes in LA;
abundant natural gas is key
Manufacturing in general should
gain worldwide market share
Cheap energy off-setting cheap labor
advantage
Example: Benteler Steel
$900 mm capex; 675 jobs
Port of Caddo Bossier
Potentials
• Ozkan Steel USA – BTR MSA (1/13)
– Looking at sites on River for $150 mm steel plant;
350 jobs
– Phase 1 – facility to sort scrap metal (summer
2013)
– Phase 2 – melting plant (June 2014)
– Phase 3 – rolling plant (June 2015)
– 300,000 tons of specialty steel for shipbuilders
Potential Problem for Chemicals:
European Shale Gas Plays
European Barriers to Shale
Development
• Generally, mineral rights owned by
government, not individuals.
– Greens more influential with government than
individuals
– Lease & royalty payments make locals more
tolerant of drilling activity
• Little geological data on foreign shale deposits.
– U.S.: tens of thousands of wells drilled with geologic
data publicly available via state regulators
– Little known about rocks overseas & whether
characteristics make fracking possible
• Once found little to no infrastructure in place
to move product to market.
Thank God for France!
• May 11, 2011 National Assembly voted to
prohibit hydraulic fracing in the country
• Bulgaria recently disallowed as well
• 11/21/12: European Parliament
implemented a Europe-wide moratorium
on shale gas development
#2 Watch
Power producers
EPA attacks on coal-fired power
plants: an alternative low cost fuel
is great
Power Use of Natural Gas
• Next 2-3 years little change
• After that, between 35-75 gigawatts of
coal-fired power plants will be shut down
• Amount depends on how rapidly EPA
regulations on cross-state pollution &
mercury emissions are implemented
Baton Rouge:
Chemical & Related Construction
• Trafigura:
– Re-Opened Ormet’s Burnside terminal @ $100
mm as Impala Warehousing
– State-of-the-art bulk terminal for coal, bauxite,
and alumina
– Adding $270 mm coal export terminal: design
phase (7/12)
Plaquemines Port:
Doubling Coal Exporting
• IMT Coal
– $12 mm expansion
• Ram Terminals:
– $150 mm on new terminal
• Oiltanking Inc.
– $136 mm project
#3 Watch
LNG Exports
Construction in
Lake Charles Future:LNG
• Re-Build for Export Terminal: Cheniere Energy
– Sabine Pass LNG: $5.6 billion project for first 2 of 4 trains
– convert import/export terminal; started construction
8/12;
– Now has four 20-year contracts for 10.5 bcf annually.
(1/12); BG Group – Britain; Gas Natural Fenosa – Spain;
GAIL – India; KOGAS;
– 2nd train $4.5 bill contract let to Bechtel 12/12.
– FEED & Permitting work started on 3rd train 12/12.
– Construction of 3rd and 4th units determined by demand.
New agreement with Total Gas & Power (9/12) will allow
for 5th train to be built.
– Approval from DOE given to export LNG (5/11) to non free
trade partners of U.S. (valuable asset); Japan & Spain not
free trade partners & import 4.12 tcf per year.
LNG Retrofit
• Re-Build for Export Terminal
– Cameron LNG (Sempra) asked FERC for 2-year authority
to re-export; Inked deals w Mitsubishi and Mitsui Corps to
work together in exchange for 1.7 bcfd (620 bcf annually)
of export capacity to Japan. Plus GDF Suez of France
agreed to about 0.4 bcfd. Total 657 BCF annually. Start
construction late 2013; operate 2016. $6 billion project; 130
jobs. Asked FERC for permission to begin building 12/12
– Lake Charles Exports, LLC (Trunkline)
• Received DOE permission to export domestic gas from its terminal
7/11; 2 bcfd for 25 years (8/11)
• Applied to FERC to start construction by 2014; ship by 2018 (4/12)
• Financial support from BG Group & Southern Union
• Note: LNG export price - $18 mmbtu
Huge Construction Potential
• Magnolia LNG (1/18/13)
– $2.2 bill natural gas liqufaction plant at Port
of Lake Charles;
– Final decision late 2014; start construction
2015
– 45 jobs @ $75,000
– Australian company
• Careful! Who will head EPA & DOE?
Impact of GOM Recovery on
Ports along Southern Coast:
Fig. 2: Oil Prices
120
Price per Barrel
100
Average
Low
High
80
2012
$95
2013
$95
$80
$110
2014
$95
$80
$110
60
40
20
0
90
92
94
96
98
POA
00
02
04
POAL
06
08
POAH
10
12
14
The Recovery
• Pre-spill: 33 rigs in deep waters
• Post-spill: 11 rigs
• 11 deepwater drill ships left the GOM after
spill
• As of 5/12---24 rigs in deep waters
• Good news: 9 new drill ships or semisubmersibles on way & in place by 2013-II
GOM Deepwater Expected Rig
Count: ISI
• 2013: 36
• Mid 2014: 50
• 2015-17: 60+
Benefits of the Gulf?
• Elephant finds
– Chevron St. Malo Field, lower tertiary: 13,000 bbl/d
(Bakken: 1,000 b/d)
• Straddles world’s biggest consumer
• Politically stable area (Argentina alarm)
• Cost of taxes, royalties, and regulations among
lowest in world
• Lots of opportunities from small, low risk
prospects to giant targets in extreme conditions
• Vast network of pipelines & refineries
My Favorite “Blonde Energy” Story
“I lost my 710 cap.”
March 7, 2013
Dr. Loren C. Scott
Loren C. Scott & Associates, Inc.
www.lorencscottassociates.com