It comes as no surprise that Lake Charles — for the sixth year running — has been named 2016 Small Market of the Year by Southern Business & Development Magazine for attracting industrial projects. But the magazine report questioned the future of the projects, predicting that “not all of the announced plants on the Gulf Coast will be built.”
This prediction was echoed by economist Loren Scott, who said global competition threatens the survival of liquefied natural gas exporters in Southwest Louisiana. “Some of these LNG projects that have been announced will probably not make it vertical,” he said.
About seven LNG companies have announced plans to build in Louisiana, but only one of them is now exporting — Cheniere Energy of Cameron — and it’s the only one operating in the nation. Most of the announced projects are still in the planning and permitting stage, Scott said, and haven’t started building yet.
This means that Southwest Louisiana LNG exporters will have to compete with the other facilities being built along the Gulf Coast — and with those around the globe — for long-term contracts with suppliers, Scott said. Companies need to secure these early to finance construction, he said, and many are struggling to do so.
“It’s getting more difficult to put things together, and that’s worrisome,” Scott said.
Right now, U.S. LNG terminals have a huge advantage over European terminals due to Europe’s decision to outlaw fracking — which means cheaper, more abundant natural gas in the U.S.
Lake Charles has the added benefit of access to extensive pipelines and port facilities, making it a perfect location for both chemical refineries and LNG exporters, Scott said.
But Scott said other countries, like Australia, are following our lead and building export terminals as well. He said Southwest Louisiana firms face the possibility of the market becoming saturated with LNG exporters.
Global natural gas prices are also dropping, he said, potentially reducing the advantage of purchasing natural gas from U.S. companies if states don’t fight to keep business costs low. He said this stiff competition makes securing long-term suppliers increasingly more difficult to do.
“(Suppliers) want to see where this is ultimately going to end up before they’re willing to sign contracts,” Scott said.
But he said the challenges faced by LNG exporters shouldn’t cause locals to be pessimistic about incoming industry, citing the billions of dollars companies have already been able to secure.
“The good news is you do have $43 billion underway — that’s just a remarkable number,” he said. Scott said those projects that are already underway — meaning they have secured permits and started building — will likely be OK.
He praised industrial expansion in Southwest Louisiana as “truly remarkable,” calling it “historically unheard of.” Southwest Louisiana has reported about $100 billion in announced industrial projects, and just a few years ago a mere $5 billion statewide was considered “amazing,” Scott said.
These industrial projects are split into two sectors: petrochemical plants and LNG companies.
Scott predicted that competition in the chemical sector would shut down European plants well before hurting U.S. plants. He said chemical plants will fare well in the Lake Area for the foreseeable future.
Southwest Louisiana Economic Development Alliance President George Swift acknowledged that the industrial market is constantly changing, but he said the region will be able to adapt, citing a long history of steady industrial success that dates back to World War II.
“I think that the technology that we have and the industry that we have will be in very good shape in the future,” Swift said.
The full economic impact of these industries is a long way from being realized, but Swift is confident that these projects will leave a positive mark on the community in the form of an estimated 20,000 permanent jobs. Swift said these jobs will ultimately result in higher household incomes and higher standards of living for the community as a whole.
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