About
The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.
The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.
Postings are weekly.
November 5, 2013
Energy Industry Keeps on Track
The Atlanta Fed’s Energy Advisory Council met at the New Orleans Branch on October 21 for its semiannual meeting to discuss current economic issues in the energy industry. Members were largely optimistic when sharing their views about demand, productivity, and pricing, which correlates to the ongoing “energy boom” we have discussed previously in SouthPoint. That said, some council members expressed concern about longer-term labor trends and noted ongoing uncertainty surrounding fiscal and regulatory policy issues.
We’ve heard for quite some time about the increase in oil and natural gas production, particularly related to shale resource production, processing, and transportation. With regard to the latter, council members discussed the importance of rail industry investment, which has been substantial recently. Increased use of rail transport has helped resolve transportation bottleneck issues that arose with rising production from shale resources. In fact, the American Association of Railroads reported that the U.S. rail industry has seen an unprecedented surge in crude shipments from less than 9,500 carloads in 2008 to more than 234,000 carloads in 2012. The numbers continue to increase in 2013. There were 97,135 carloads in the first quarter, up 166 percent from the first quarter of 2012.
With regard to pricing, council members generally agreed that natural gas prices will eventually rise. Factors behind the increase will likely be twofold: first (and probably most importantly in the near-term), once exports of liquefied natural gas begin, the supply glut in the United States is expected to alleviate, aligning U.S. pricing more closely with world prices. Second, the abundance of natural gas is prompting investment in technology dependent on it (for example, transportation, utilities, and manufacturing). As more projects that consume natural gas come online, higher demand is likely to push up market prices.
Some council members reported some concern about employment in the energy sector, because demand for skilled workers has outweighed the supply and led to labor shortages. One member pointed to an age gap in staff educated in engineering and possessing specialized skills. This appears to be tied to the decline in geology and energy-related education programs in colleges and universities following the oil price crash in the 1980s. Although these programs have regained popularity in recent years, and the supply of recent graduates with the desired degrees is growing, there is likely to be an experience gap that could be difficult to fill as current, more tenured workers retire.
Finally, though the Energy Advisory Council was generally upbeat about current industry conditions, members agreed that issues such as uncertainty surrounding fiscal policy, regulations, and ambiguity in the tax code are weighing on their confidence in the outlook. However, despite these concerns, members were unanimous in their belief that the policy and economic environment in the United States remained more attractive than most other energy-producing regions around the globe.
Rebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch
October 31, 2013
Acadiana Spotlight: Optimistic about Local Real Estate Conditions
You may recall that my Atlanta Fed colleague Rebekah Durham and I reported on housing conditions in southeast Louisiana in our July 22 SouthPoint post. I recently returned from another trip to Louisiana; this time, my colleagues from the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed invited me to join them as they touched base with real estate contacts in the Acadiana region, which encompasses the city of Lafayette and the surrounding parishes. I’m happy to report that our real estate business contacts were quite optimistic on both the residential and commercial real estate fronts.
Contacts indicated that the Lafayette area has experienced tremendous growth over the past year, thanks in large part to the energy sector. However, they were quick to point out that growth in the energy sector only serves as “four of the cylinders in an eight-cylinder engine,” as they described growth in medical, fiber, technology, and petrochemical fields as other drivers of growth. Business contacts mentioned that several companies are in the process of relocating high-paying executive positions as well as management positions to the Lafayette metropolitan statistical area. This growth has had quite a positive impact on the local real estate markets.
On the commercial real estate side, contacts reported that a fair amount of construction activity is taking place in the industrial and retail sectors, with considerable construction of medical office space also under way. Contacts indicated that this increased construction activity has been steady during the past year and a half and encompassed both existing firms wanting to expand their space and firms new to the area undertaking construction. Commercial real estate brokers expressed little to no difficulty in leasing existing space.
On the residential real estate side, business contacts reported that home sales are up more than 13 percent from a year earlier. Contacts indicated that the jump in mortgage rates seems to have raised demand more than it deterred potential buyers. Though new listings are up more than 17 percent year over year, contacts noted that the months’ supply of homes for sale dropped from 6.5 months to 5.3 months. Moreover, home prices have increased almost 2 percent from a year earlier, according to the Federal Housing Finance Agency’s quarterly house price index.
All said, contacts expect 2014 and 2015 to be even better than 2013 was. They pointed out that these large infrastructure investments by area businesses send a strong signal that the energy sector will not be leaving the area any time soon. As the nearby port expansions wrap up, more rigs come online, and manufacturing and petrochemical plants open their doors, business contacts are confident that an increase in real estate demand will follow.
By Jessica Dill, senior economic research analyst in the Atlanta Fed’s research department
August 20, 2013
Energy Brightens Louisiana's Manufacturing Outlook
Oil and gas activity is at its strongest level in decades, and investment is a big part of the story. The Atlanta Fed’s Energy Advisory Council reported an estimated $160 billion in capital investment across the Gulf Coast for pending projects related to liquefied natural gas (LNG) import/export terminals and petrochemicals over the next several years. Numerous gas shale plays (a term for shale formations containing natural gas) and technological innovation in hydraulic fracturing (commonly called “fracking”) techniques have made supply of natural gas abundant and prices low.
This increased investment and plentiful and low-cost natural gas are having a major impact on manufacturing in Louisiana in particular, leading many industry experts to declare a “renaissance” and “new industrial revolution” in Louisiana. Chemicals manufacturing in particular is expanding at a rapid pace in Louisiana, considering natural gas is a key feedstock in its production process. Over the next two years, chemical firms are planning more than $60 billion in new and expanded investments in the state.
Loren Scott, an emeritus faculty member in Louisiana State University’s E.J. Ourso College of Business’s economics department, conducted a study of the chemicals industry in Louisiana, published by the Louisiana Foundation for Excellence in Science, Technology and Education in 2012. Scott reported the state’s chemical industry is thriving and providing thousands of jobs, billions of dollars in economic impact, and generous tax revenues to state and local governments. “The chemical industry is the top producer of direct jobs in the Louisiana manufacturing sector, a major player in the national economy and is the state’s top manufacturing exporter,” Scott said. The industry accounted for 7.3 percent of all earnings in the state in 2011, generating $8.9 billion and 26,944 jobs. Scott’s report provides a list of nearly 20 chemical firms that announced billions of dollars in expansions across Louisiana in 2012. He attributes this wave of growth to the competitive advantage generated by low natural gas prices.
The boom in Louisiana manufacturing is not limited to the chemicals industry. Others are reaping the benefits of low natural gas prices. Steel makers, for example, are gaining from both the reduced cost of manufacturing as a result of low natural gas prices and from strong demand for steel pipe used for oil and gas drilling. Companies are setting up shop closer to major gas distribution hubs in Louisiana, and others are polishing up aging plants to replace coal with cheaper natural gas. The Atlanta Fed’s Energy Advisory Council reported this capital investment is being made in the utility sector.
Employment growth in manufacturing should increase as these investments and relocations accelerate. The chart below shows that manufacturing job growth in southern Louisiana, where much of the state’s energy-related activity is located, has consistently outperformed the rest of the state and the nation as a whole.
What does all of this mean for the future of Louisiana manufacturing? It looks bright, as long as natural gas remains accessible and low cost—which could be challenged by other parts of the world with vast, untapped shale plays. With all of the excitement and progress it’s easy to forget that just three years ago, manufacturing was considered a declining industry in Louisiana. Energy-related activity, especially in the southern part of the state, is helping to shift that perception.
By Rebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch
December 12, 2012
Energy Renaissance
Professor David Dismukes, associate director of the Center for Energy Studies at Louisiana State University (LSU), said in his presentation to the Atlanta Economics Club on December 11 that the United States is "entering an energy renaissance period." He added that the outlook is very bright and that the "United States—and North America generally—has quickly become one of the most attractive regions for new investment."
LSU's Center for Energy Studies provides energy information and analysis that respond to the needs of the legislature, public agencies, and business and civic groups. The center also maintains some very useful and unique energy databases. Dismukes has been on the LSU faculty for over a decade, and since that time has led a number of the center's research efforts on topics associated with almost all aspects of the energy industry.
New natural gas availability is having a considerable impact on all energy markets today and on a longer-term, forward-looking basis. The increase in production from shale is now migrating into liquids and crude oil production. Dismukes said that "the expansion of this revolution is increasing liquids production as well as facilitating additional natural gas production despite low prices."
"Reserve development, production, and capital expenditures are all up to record levels," he continued. He believes that the effect on hiring will be significant as the energy infrastructure expands. There will also be considerable economic development opportunities through lower energy costs.
Developments will change energy market dynamics, including those associated with clean energy initiatives and renewables, nuclear power, carbon capture and storage, and energy efficiency. "Renewables have a bright outlook, and the economics have seen significant improvements." Currently, 37 states have renewables portfolio standards policies in place that should continue to increase demand for renewables.
Regionally, the impact of the energy boom will be felt most directly in Louisiana, where most of the Southeast's energy infrastructure is located. But the longer-term implications of cheap, abundant, and diverse sources of energy will be significant for the rest of the country as well.
By Michael Chriszt, a vice president in the Atlanta Fed's research department
November 5, 2013
Energy Industry Keeps on Track
The Atlanta Fed’s Energy Advisory Council met at the New Orleans Branch on October 21 for its semiannual meeting to discuss current economic issues in the energy industry. Members were largely optimistic when sharing their views about demand, productivity, and pricing, which correlates to the ongoing “energy boom” we have discussed previously in SouthPoint. That said, some council members expressed concern about longer-term labor trends and noted ongoing uncertainty surrounding fiscal and regulatory policy issues.
We’ve heard for quite some time about the increase in oil and natural gas production, particularly related to shale resource production, processing, and transportation. With regard to the latter, council members discussed the importance of rail industry investment, which has been substantial recently. Increased use of rail transport has helped resolve transportation bottleneck issues that arose with rising production from shale resources. In fact, the American Association of Railroads reported that the U.S. rail industry has seen an unprecedented surge in crude shipments from less than 9,500 carloads in 2008 to more than 234,000 carloads in 2012. The numbers continue to increase in 2013. There were 97,135 carloads in the first quarter, up 166 percent from the first quarter of 2012.
With regard to pricing, council members generally agreed that natural gas prices will eventually rise. Factors behind the increase will likely be twofold: first (and probably most importantly in the near-term), once exports of liquefied natural gas begin, the supply glut in the United States is expected to alleviate, aligning U.S. pricing more closely with world prices. Second, the abundance of natural gas is prompting investment in technology dependent on it (for example, transportation, utilities, and manufacturing). As more projects that consume natural gas come online, higher demand is likely to push up market prices.
Some council members reported some concern about employment in the energy sector, because demand for skilled workers has outweighed the supply and led to labor shortages. One member pointed to an age gap in staff educated in engineering and possessing specialized skills. This appears to be tied to the decline in geology and energy-related education programs in colleges and universities following the oil price crash in the 1980s. Although these programs have regained popularity in recent years, and the supply of recent graduates with the desired degrees is growing, there is likely to be an experience gap that could be difficult to fill as current, more tenured workers retire.
Finally, though the Energy Advisory Council was generally upbeat about current industry conditions, members agreed that issues such as uncertainty surrounding fiscal policy, regulations, and ambiguity in the tax code are weighing on their confidence in the outlook. However, despite these concerns, members were unanimous in their belief that the policy and economic environment in the United States remained more attractive than most other energy-producing regions around the globe.
Rebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch
October 31, 2013
Acadiana Spotlight: Optimistic about Local Real Estate Conditions
You may recall that my Atlanta Fed colleague Rebekah Durham and I reported on housing conditions in southeast Louisiana in our July 22 SouthPoint post. I recently returned from another trip to Louisiana; this time, my colleagues from the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed invited me to join them as they touched base with real estate contacts in the Acadiana region, which encompasses the city of Lafayette and the surrounding parishes. I’m happy to report that our real estate business contacts were quite optimistic on both the residential and commercial real estate fronts.
Contacts indicated that the Lafayette area has experienced tremendous growth over the past year, thanks in large part to the energy sector. However, they were quick to point out that growth in the energy sector only serves as “four of the cylinders in an eight-cylinder engine,” as they described growth in medical, fiber, technology, and petrochemical fields as other drivers of growth. Business contacts mentioned that several companies are in the process of relocating high-paying executive positions as well as management positions to the Lafayette metropolitan statistical area. This growth has had quite a positive impact on the local real estate markets.
On the commercial real estate side, contacts reported that a fair amount of construction activity is taking place in the industrial and retail sectors, with considerable construction of medical office space also under way. Contacts indicated that this increased construction activity has been steady during the past year and a half and encompassed both existing firms wanting to expand their space and firms new to the area undertaking construction. Commercial real estate brokers expressed little to no difficulty in leasing existing space.
On the residential real estate side, business contacts reported that home sales are up more than 13 percent from a year earlier. Contacts indicated that the jump in mortgage rates seems to have raised demand more than it deterred potential buyers. Though new listings are up more than 17 percent year over year, contacts noted that the months’ supply of homes for sale dropped from 6.5 months to 5.3 months. Moreover, home prices have increased almost 2 percent from a year earlier, according to the Federal Housing Finance Agency’s quarterly house price index.
All said, contacts expect 2014 and 2015 to be even better than 2013 was. They pointed out that these large infrastructure investments by area businesses send a strong signal that the energy sector will not be leaving the area any time soon. As the nearby port expansions wrap up, more rigs come online, and manufacturing and petrochemical plants open their doors, business contacts are confident that an increase in real estate demand will follow.
By Jessica Dill, senior economic research analyst in the Atlanta Fed’s research department
August 20, 2013
Energy Brightens Louisiana's Manufacturing Outlook
Oil and gas activity is at its strongest level in decades, and investment is a big part of the story. The Atlanta Fed’s Energy Advisory Council reported an estimated $160 billion in capital investment across the Gulf Coast for pending projects related to liquefied natural gas (LNG) import/export terminals and petrochemicals over the next several years. Numerous gas shale plays (a term for shale formations containing natural gas) and technological innovation in hydraulic fracturing (commonly called “fracking”) techniques have made supply of natural gas abundant and prices low.
This increased investment and plentiful and low-cost natural gas are having a major impact on manufacturing in Louisiana in particular, leading many industry experts to declare a “renaissance” and “new industrial revolution” in Louisiana. Chemicals manufacturing in particular is expanding at a rapid pace in Louisiana, considering natural gas is a key feedstock in its production process. Over the next two years, chemical firms are planning more than $60 billion in new and expanded investments in the state.
Loren Scott, an emeritus faculty member in Louisiana State University’s E.J. Ourso College of Business’s economics department, conducted a study of the chemicals industry in Louisiana, published by the Louisiana Foundation for Excellence in Science, Technology and Education in 2012. Scott reported the state’s chemical industry is thriving and providing thousands of jobs, billions of dollars in economic impact, and generous tax revenues to state and local governments. “The chemical industry is the top producer of direct jobs in the Louisiana manufacturing sector, a major player in the national economy and is the state’s top manufacturing exporter,” Scott said. The industry accounted for 7.3 percent of all earnings in the state in 2011, generating $8.9 billion and 26,944 jobs. Scott’s report provides a list of nearly 20 chemical firms that announced billions of dollars in expansions across Louisiana in 2012. He attributes this wave of growth to the competitive advantage generated by low natural gas prices.
The boom in Louisiana manufacturing is not limited to the chemicals industry. Others are reaping the benefits of low natural gas prices. Steel makers, for example, are gaining from both the reduced cost of manufacturing as a result of low natural gas prices and from strong demand for steel pipe used for oil and gas drilling. Companies are setting up shop closer to major gas distribution hubs in Louisiana, and others are polishing up aging plants to replace coal with cheaper natural gas. The Atlanta Fed’s Energy Advisory Council reported this capital investment is being made in the utility sector.
Employment growth in manufacturing should increase as these investments and relocations accelerate. The chart below shows that manufacturing job growth in southern Louisiana, where much of the state’s energy-related activity is located, has consistently outperformed the rest of the state and the nation as a whole.
What does all of this mean for the future of Louisiana manufacturing? It looks bright, as long as natural gas remains accessible and low cost—which could be challenged by other parts of the world with vast, untapped shale plays. With all of the excitement and progress it’s easy to forget that just three years ago, manufacturing was considered a declining industry in Louisiana. Energy-related activity, especially in the southern part of the state, is helping to shift that perception.
By Rebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch
December 12, 2012
Energy Renaissance
Professor David Dismukes, associate director of the Center for Energy Studies at Louisiana State University (LSU), said in his presentation to the Atlanta Economics Club on December 11 that the United States is "entering an energy renaissance period." He added that the outlook is very bright and that the "United States—and North America generally—has quickly become one of the most attractive regions for new investment."
LSU's Center for Energy Studies provides energy information and analysis that respond to the needs of the legislature, public agencies, and business and civic groups. The center also maintains some very useful and unique energy databases. Dismukes has been on the LSU faculty for over a decade, and since that time has led a number of the center's research efforts on topics associated with almost all aspects of the energy industry.
New natural gas availability is having a considerable impact on all energy markets today and on a longer-term, forward-looking basis. The increase in production from shale is now migrating into liquids and crude oil production. Dismukes said that "the expansion of this revolution is increasing liquids production as well as facilitating additional natural gas production despite low prices."
"Reserve development, production, and capital expenditures are all up to record levels," he continued. He believes that the effect on hiring will be significant as the energy infrastructure expands. There will also be considerable economic development opportunities through lower energy costs.
Developments will change energy market dynamics, including those associated with clean energy initiatives and renewables, nuclear power, carbon capture and storage, and energy efficiency. "Renewables have a bright outlook, and the economics have seen significant improvements." Currently, 37 states have renewables portfolio standards policies in place that should continue to increase demand for renewables.
Regionally, the impact of the energy boom will be felt most directly in Louisiana, where most of the Southeast's energy infrastructure is located. But the longer-term implications of cheap, abundant, and diverse sources of energy will be significant for the rest of the country as well.
By Michael Chriszt, a vice president in the Atlanta Fed's research department
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