Southpoint

October 11, 2012

More on Natural Gas

We've written before about David Dismukes, associate director and a professor at Louisiana State University's Center for Energy Studies (CES). He has added several presentations to the CES website highlighting the impact of natural gas extraction on the energy sector. He writes, "New natural gas supply availability is having considerable impacts on all energy markets today and on longer term" and that the "[t]raditional sectors of energy industry have proven they are high technology, high capital, and high growth."

Charles Goodson, president of PetroQuest Energy—an independent energy company engaged in the exploration, development, acquisition, and production of oil and natural gas reserves—and a member of the Atlanta Fed's Energy Advisory Council, presented "Natural Gas—The Bridge to our Energy Future" to the Atlanta Rotary Club in early October. His main points were similar to Dr. Dismukes in that the revolution in domestic energy production presents the U.S. economy with a significant opportunity. Among Mr. Goodson's points were the following:

"Natural Gas production has increased 16.6% from the end of 2008 despite a 60% drop in the natural gas rig count. U.S. natural gas consumption has not kept up with supply. New demand sources need to be considered given the available supply."

"The ramp up in natural gas production from shale gas has led to the collapse of natural gas prices and driven the industry towards oil/liquids rich production. Improvements in technology, notably horizontal drilling and hydraulic fracturing, are the key drivers in the ability to produce more hydrocarbons."

"Liquefied Natural Gas (LNG) imports are at an all-time low due to the increase in domestic supply. LNG export from the U.S. is likely given the excess supply. The greatest step the U.S. could make towards energy independence is to substitute natural gas for oil domestically which would help reduce foreign imports."

Some people are opposed to the process that has led to the increase in domestic energy production, and it is not my intent to jump into that debate. What seems inescapable is the fact that the United States is producing more and more oil and natural gas. What is also apparent is that we have not figured out what to do with it all yet.

By Mike Chriszt, a vice president in the Atlanta Fed's research department

• October 11, 2012 in
  • Energy
• Permalink
• Comments

September 14, 2012

Energy Resources Abound

In looking back at drivers of regional economic activity over the past several years, one consistent theme has been energy. Discoveries of new resources and application of high-tech extraction techniques have led to a boom in the regional energy sector. Keeping up with information on these developments can be a challenge, but thankfully we have a great resource right here in the Southeast.

Louisiana State University's Center for Energy Studies (CES) is mandated to provide energy information and analysis that responds to the needs of the legislature, public agencies, and business and civic groups. The CES maintains some unique energy databases and is the official repository of energy information from the state and the Energy Council.

CES staff members respond regularly to requests from a wide variety of individuals and institutions for specialized energy data and information. The website contains a list of very informative presentations, many focusing on broader issues on the energy sector—including studies that show the impact of shale gas and oil production and the effect of hurricanes on energy infrastructure. 

Here at the Atlanta Fed, we tap into the CES on a regular basis for its knowledge and expertise. We also have a dedicated Energy Advisory Council made up of industry leaders from the region. Meeting three times a year, this council discusses all facets of the industry and investigates trends in oil-related industries, nationally and globally, which in turn helps inform the Atlanta Fed's assessment of the economy.

The Energy Advisory Council is headed by Bob Musso, senior vice president and regional executive of the New Orleans Branch, and assisted by the Bank's REIN staff from the New Orleans Branch. Information gathered from these contacts, and other energy contacts from the region, are incorporated into the Bank's internal and external reports on the state of the economy. Most recently, the council was instrumental in helping Atlanta Fed President Dennis Lockhart assess the impact of Hurricane Isaac on the Gulf Coast's energy infrastructure.

While our interest in energy focuses on its national impact, having southern Louisiana in the Sixth Federal Reserve District helps put the pieces together. Having the large, energy-rich state of Texas in its region puts the Federal Reserve Bank of Dallas in a similar position. The Dallas Fed produces the Quarterly Energy Update, which is another great source of information.

Whether it is data, analysis, or industry reports, resources for tracking the energy sector are vast. Given the growing importance of energy extraction and production in the regional and national economy, drilling into these information resources is well worthwhile.

By Mike Chriszt, a vice president in the Atlanta Fed's research department

• September 14, 2012 in
  • Energy
• Permalink
• Comments

May 6, 2011

Insight from our Energy Advisory Council

The Federal Reserve Bank of Atlanta's Energy Advisory Council met at the New Orleans Branch a few weeks ago. The Energy Advisory Council is one of five such councils that are part of the Atlanta Fed's Regional Economic Information Network (REIN). Others include agriculture, trade and transportation, travel and tourism, and small/emerging business. The Energy Advisory Council consists of representatives from upstream and downstream production firms, utility companies, and manufacturing/fabrication companies.

Part of the meeting focused on the recent increase in oil prices, and council members discussed the causes and sustainability of higher energy costs. The conclusion was that the price increases were largely the result of higher demand and the increased potential of supply issues, the latter being most affected by recent unrest in the Middle East. Longer-term, members agreed that Gulf of Mexico energy production may not reach its potential. They noted that although 10 offshore drilling permits have been approved since the expiration of the moratorium on deepwater drilling in the Gulf of Mexico, only one was for new exploration. The other permits were issued to resume operations that had been shut down during the moratorium.

Another focus of the meeting was the crisis at the nuclear plant in Japan and the possible repercussions this event may have for the U. S. nuclear power industry. Currently, council members noted, the new nuclear facilities being approved and built have an advanced design, which does not require electricity to cool an overheating reactor, but uses gravity instead. The advanced designs will have other redundant backups as well. In addition, the oversight of existing nuclear plant operations will likely become even more stringent. With the government's current push for clean energy, members agreed that a slowdown in permitting new facilities is not likely.

More generally, council members discussed rising commodity costs being felt throughout the industry, especially with regard to steel (see the chart). They agreed that higher raw materials costs will eventually be passed through to oil and gasoline prices.

Enlarge

Also among the notes from the meeting:

• Activity in the utility sector is up as measured by electricity sales, with the industrial sector showing positive activity, but weakness persists in the residential and commercial markets.

• The introduction of horizontal drilling and liquefaction has changed the natural gas industry, both from the supply and demand side. Supply has increased as a result of the development horizontal fracturing, and demand has increased in part because of the high cost of petroleum.

Input from our Energy Advisory Council and other advisory councils helps us gain insight into economic developments in key industries and sectors in the region's economy. Since developments in these important areas of economic activity influence the broader economy, this insight is a key part of our overall assessment of economic activity in the nation as a whole.

By Kate Glover, Regional Economic Information Network analyst at the New Orleans Branch of the Atlanta Fed

• May 6, 2011 in
  • Commodity Prices
  • Energy
• Permalink
• Comments

December 2, 2010

Thoughts on Georgia's economic outlook and energy demands

On December 1, I participated in the program on "Promoting Sustainable Energy Resources," which was organized under the aegis of the Consulate General of France for the Southeastern USA and an array of French and American partner institutions and organizations. I'd like to outline my comments on that issue and related economic matters:

The national and state economies are recovering, but slowly.

Recent data and reports from business contacts indicated that economic activity rose modestly in October through mid-November.

Nationally, estimates indicate that real gross domestic product (GDP) grew 2.5 percent in the third quarter, similar to the modest growth rate posted in the second quarter.

The consensus real GDP forecast of economists is for positive but slow growth through 2011.

In Georgia, the recession was steeper and the recovery to date has been more muted than what we have seen in other areas of the nation. Nonetheless, the narrative of a slow, steady recovery holds for our state as well.

According to the U.S. Department of Energy, Georgia ranks ninth among all states in terms of total energy consumption. As the state's economy recovers, energy demand is expected to increase.

In manufacturing, recent data showed an increase in industrial activity in October, although the pace of growth appeared to decelerate in Georgia.

A notable share of Georgia's industrial output is tied to the construction sector, which we'll talk about in a minute. Because of the deep downturn in development, our manufacturing recovery may be a bit more tepid than what we're seeing at the national level.

Kennesaw State University's Econometric Center publishes a purchasing managers index (PMI) for Georgia. It reflects manufacturing activity at the state level. The survey asks plant managers about current production and orders, among other things, that feed into an overall index. Anytime that reading is above 50, it represents an expansion in manufacturing activity, and when it's below 50, it represents a contraction.

After spending nearly two years below 50, Georgia's PMI entered expansion territory early this year—rising steadily before decelerating in August, September, and October to a reading just above 50. Manufacturing is expected to continue to expand modestly going forward. As the state's industrial activity improves, its energy demands likely will rise.

I noted a moment ago that the state's construction sector is largely dormant. Census data show that after averaging roughly 8,000 new housing units through 2005, permits for new residential construction declined to below 1,000 in 2010. It's unlikely that this number will be picking up soon because of the large inventory of unsold homes on the market and the difficulties that remain in obtaining housing finance.

Energy demand for construction will therefore likely not be increasing at the pace seen earlier in the decade.

Transportation is another area of the economy that requires a lot of energy. Personal transportation is likely off where it was a few years ago because of the state's high unemployment rate; fewer people are driving to work.

That said, as personal spending increases as the economy recovers, the shipment of goods around the state will likely rebound. Georgia is a national logistics hub with the port of Savannah and transportation hubs like Atlanta. The state's energy consumption from freight transportation will therefore likely rise faster as the economy rebounds.

In short, Georgia's energy demands look like they are likely to rise in the short term as the economy recovers, and in the long term as the state returns to more normal growth patterns. Georgia has traditionally outpaced the national average in terms of the pace of economic growth, and there's every reason to believe that this pace will return once the remaining economic imbalances are worked out.

Providing the energy for this accelerated pace of economic activity is a central part of the story. During the recession, a number of developments have occurred that allow me to be optimistic when it comes to employing our energy resources more efficiently in the future.

First, many businesses—large and small, industrial and service-oriented—have undertaken serious programs to increase their energy efficiency. Doing more with less was a theme we heard over and over again from our business contacts in Georgia. This effort includes reducing their energy bills through investment in cost-saving equipment and installation of energy-reducing policies. We have initiated several energy-savings programs at the Atlanta Fed just in the last few years.

Doing more with less may also be reflected in the kind of homes that are built in Georgia, once we start building them again. Smaller, more energy-efficient homes may be the norm, and this type of home will help us contain energy demand from the residential sector.

For many car buyers in the last few years, fuel efficiency has been a major factor in the decision about what model to acquire. Fuel efficiency in cars and trucks is improving, and as long as consumers demand better and better results, manufacturers will have no choice but to make them.

Doing more with less, energy savings as a means to achieve greater cost savings (both in our businesses and in our homes), and increased fuel efficiency are ideas that have accelerated during the recession. These improvements will allow us to meet future energy demand, but they do not truly get to the question of sustainability.

I'd like to quote from an energy study done at the Atlanta Fed published in 2009 by my colleague Laurel Graefe. She writes:

"The supply of energy as we have known it is in the process of transition. Today's 'easy' conventional oil that the world relies upon as a primary energy source is being depleted, and, regardless of the exact timing of peak oil production—be it this year or fifty years down the road—the world faces the challenge of adapting to a new model of energy supply.

"The underlying issue in the debate regarding energy resource depletion is the fear that the transition from conventional oil to substitutes will be expensive and chaotic, leaving insufficient time for supply substitution and adaptation."

Finding substitutes for our current stock of energy resources is a question for today, not tomorrow. We are taking small steps to meet future demands more efficiently and with less pollution. That progress is all good. But we need to take bigger steps to really address the question of sustainability. More and more people will come to Georgia, and their demand for energy resources will continue to increase. Meeting that demand in a framework of sustainability is the issue of the 21st century.

By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department

• December 2, 2010 in
  • Construction
  • Employment
  • Energy
  • Housing
  • Manufacturing
  • Transportation
• Permalink
• Comments

October 11, 2012

More on Natural Gas

We've written before about David Dismukes, associate director and a professor at Louisiana State University's Center for Energy Studies (CES). He has added several presentations to the CES website highlighting the impact of natural gas extraction on the energy sector. He writes, "New natural gas supply availability is having considerable impacts on all energy markets today and on longer term" and that the "[t]raditional sectors of energy industry have proven they are high technology, high capital, and high growth."

Charles Goodson, president of PetroQuest Energy—an independent energy company engaged in the exploration, development, acquisition, and production of oil and natural gas reserves—and a member of the Atlanta Fed's Energy Advisory Council, presented "Natural Gas—The Bridge to our Energy Future" to the Atlanta Rotary Club in early October. His main points were similar to Dr. Dismukes in that the revolution in domestic energy production presents the U.S. economy with a significant opportunity. Among Mr. Goodson's points were the following:

"Natural Gas production has increased 16.6% from the end of 2008 despite a 60% drop in the natural gas rig count. U.S. natural gas consumption has not kept up with supply. New demand sources need to be considered given the available supply."

"The ramp up in natural gas production from shale gas has led to the collapse of natural gas prices and driven the industry towards oil/liquids rich production. Improvements in technology, notably horizontal drilling and hydraulic fracturing, are the key drivers in the ability to produce more hydrocarbons."

"Liquefied Natural Gas (LNG) imports are at an all-time low due to the increase in domestic supply. LNG export from the U.S. is likely given the excess supply. The greatest step the U.S. could make towards energy independence is to substitute natural gas for oil domestically which would help reduce foreign imports."

Some people are opposed to the process that has led to the increase in domestic energy production, and it is not my intent to jump into that debate. What seems inescapable is the fact that the United States is producing more and more oil and natural gas. What is also apparent is that we have not figured out what to do with it all yet.

By Mike Chriszt, a vice president in the Atlanta Fed's research department

• October 11, 2012 in
  • Energy
• Permalink
• Comments

September 14, 2012

Energy Resources Abound

In looking back at drivers of regional economic activity over the past several years, one consistent theme has been energy. Discoveries of new resources and application of high-tech extraction techniques have led to a boom in the regional energy sector. Keeping up with information on these developments can be a challenge, but thankfully we have a great resource right here in the Southeast.

Louisiana State University's Center for Energy Studies (CES) is mandated to provide energy information and analysis that responds to the needs of the legislature, public agencies, and business and civic groups. The CES maintains some unique energy databases and is the official repository of energy information from the state and the Energy Council.

CES staff members respond regularly to requests from a wide variety of individuals and institutions for specialized energy data and information. The website contains a list of very informative presentations, many focusing on broader issues on the energy sector—including studies that show the impact of shale gas and oil production and the effect of hurricanes on energy infrastructure. 

Here at the Atlanta Fed, we tap into the CES on a regular basis for its knowledge and expertise. We also have a dedicated Energy Advisory Council made up of industry leaders from the region. Meeting three times a year, this council discusses all facets of the industry and investigates trends in oil-related industries, nationally and globally, which in turn helps inform the Atlanta Fed's assessment of the economy.

The Energy Advisory Council is headed by Bob Musso, senior vice president and regional executive of the New Orleans Branch, and assisted by the Bank's REIN staff from the New Orleans Branch. Information gathered from these contacts, and other energy contacts from the region, are incorporated into the Bank's internal and external reports on the state of the economy. Most recently, the council was instrumental in helping Atlanta Fed President Dennis Lockhart assess the impact of Hurricane Isaac on the Gulf Coast's energy infrastructure.

While our interest in energy focuses on its national impact, having southern Louisiana in the Sixth Federal Reserve District helps put the pieces together. Having the large, energy-rich state of Texas in its region puts the Federal Reserve Bank of Dallas in a similar position. The Dallas Fed produces the Quarterly Energy Update, which is another great source of information.

Whether it is data, analysis, or industry reports, resources for tracking the energy sector are vast. Given the growing importance of energy extraction and production in the regional and national economy, drilling into these information resources is well worthwhile.

By Mike Chriszt, a vice president in the Atlanta Fed's research department

• September 14, 2012 in
  • Energy
• Permalink
• Comments

May 6, 2011

Insight from our Energy Advisory Council

The Federal Reserve Bank of Atlanta's Energy Advisory Council met at the New Orleans Branch a few weeks ago. The Energy Advisory Council is one of five such councils that are part of the Atlanta Fed's Regional Economic Information Network (REIN). Others include agriculture, trade and transportation, travel and tourism, and small/emerging business. The Energy Advisory Council consists of representatives from upstream and downstream production firms, utility companies, and manufacturing/fabrication companies.

Part of the meeting focused on the recent increase in oil prices, and council members discussed the causes and sustainability of higher energy costs. The conclusion was that the price increases were largely the result of higher demand and the increased potential of supply issues, the latter being most affected by recent unrest in the Middle East. Longer-term, members agreed that Gulf of Mexico energy production may not reach its potential. They noted that although 10 offshore drilling permits have been approved since the expiration of the moratorium on deepwater drilling in the Gulf of Mexico, only one was for new exploration. The other permits were issued to resume operations that had been shut down during the moratorium.

Another focus of the meeting was the crisis at the nuclear plant in Japan and the possible repercussions this event may have for the U. S. nuclear power industry. Currently, council members noted, the new nuclear facilities being approved and built have an advanced design, which does not require electricity to cool an overheating reactor, but uses gravity instead. The advanced designs will have other redundant backups as well. In addition, the oversight of existing nuclear plant operations will likely become even more stringent. With the government's current push for clean energy, members agreed that a slowdown in permitting new facilities is not likely.

More generally, council members discussed rising commodity costs being felt throughout the industry, especially with regard to steel (see the chart). They agreed that higher raw materials costs will eventually be passed through to oil and gasoline prices.

Enlarge

Also among the notes from the meeting:

• Activity in the utility sector is up as measured by electricity sales, with the industrial sector showing positive activity, but weakness persists in the residential and commercial markets.

• The introduction of horizontal drilling and liquefaction has changed the natural gas industry, both from the supply and demand side. Supply has increased as a result of the development horizontal fracturing, and demand has increased in part because of the high cost of petroleum.

Input from our Energy Advisory Council and other advisory councils helps us gain insight into economic developments in key industries and sectors in the region's economy. Since developments in these important areas of economic activity influence the broader economy, this insight is a key part of our overall assessment of economic activity in the nation as a whole.

By Kate Glover, Regional Economic Information Network analyst at the New Orleans Branch of the Atlanta Fed

• May 6, 2011 in
  • Commodity Prices
  • Energy
• Permalink
• Comments

December 2, 2010

Thoughts on Georgia's economic outlook and energy demands

On December 1, I participated in the program on "Promoting Sustainable Energy Resources," which was organized under the aegis of the Consulate General of France for the Southeastern USA and an array of French and American partner institutions and organizations. I'd like to outline my comments on that issue and related economic matters:

The national and state economies are recovering, but slowly.

Recent data and reports from business contacts indicated that economic activity rose modestly in October through mid-November.

Nationally, estimates indicate that real gross domestic product (GDP) grew 2.5 percent in the third quarter, similar to the modest growth rate posted in the second quarter.

The consensus real GDP forecast of economists is for positive but slow growth through 2011.

In Georgia, the recession was steeper and the recovery to date has been more muted than what we have seen in other areas of the nation. Nonetheless, the narrative of a slow, steady recovery holds for our state as well.

According to the U.S. Department of Energy, Georgia ranks ninth among all states in terms of total energy consumption. As the state's economy recovers, energy demand is expected to increase.

In manufacturing, recent data showed an increase in industrial activity in October, although the pace of growth appeared to decelerate in Georgia.

A notable share of Georgia's industrial output is tied to the construction sector, which we'll talk about in a minute. Because of the deep downturn in development, our manufacturing recovery may be a bit more tepid than what we're seeing at the national level.

Kennesaw State University's Econometric Center publishes a purchasing managers index (PMI) for Georgia. It reflects manufacturing activity at the state level. The survey asks plant managers about current production and orders, among other things, that feed into an overall index. Anytime that reading is above 50, it represents an expansion in manufacturing activity, and when it's below 50, it represents a contraction.

After spending nearly two years below 50, Georgia's PMI entered expansion territory early this year—rising steadily before decelerating in August, September, and October to a reading just above 50. Manufacturing is expected to continue to expand modestly going forward. As the state's industrial activity improves, its energy demands likely will rise.

I noted a moment ago that the state's construction sector is largely dormant. Census data show that after averaging roughly 8,000 new housing units through 2005, permits for new residential construction declined to below 1,000 in 2010. It's unlikely that this number will be picking up soon because of the large inventory of unsold homes on the market and the difficulties that remain in obtaining housing finance.

Energy demand for construction will therefore likely not be increasing at the pace seen earlier in the decade.

Transportation is another area of the economy that requires a lot of energy. Personal transportation is likely off where it was a few years ago because of the state's high unemployment rate; fewer people are driving to work.

That said, as personal spending increases as the economy recovers, the shipment of goods around the state will likely rebound. Georgia is a national logistics hub with the port of Savannah and transportation hubs like Atlanta. The state's energy consumption from freight transportation will therefore likely rise faster as the economy rebounds.

In short, Georgia's energy demands look like they are likely to rise in the short term as the economy recovers, and in the long term as the state returns to more normal growth patterns. Georgia has traditionally outpaced the national average in terms of the pace of economic growth, and there's every reason to believe that this pace will return once the remaining economic imbalances are worked out.

Providing the energy for this accelerated pace of economic activity is a central part of the story. During the recession, a number of developments have occurred that allow me to be optimistic when it comes to employing our energy resources more efficiently in the future.

First, many businesses—large and small, industrial and service-oriented—have undertaken serious programs to increase their energy efficiency. Doing more with less was a theme we heard over and over again from our business contacts in Georgia. This effort includes reducing their energy bills through investment in cost-saving equipment and installation of energy-reducing policies. We have initiated several energy-savings programs at the Atlanta Fed just in the last few years.

Doing more with less may also be reflected in the kind of homes that are built in Georgia, once we start building them again. Smaller, more energy-efficient homes may be the norm, and this type of home will help us contain energy demand from the residential sector.

For many car buyers in the last few years, fuel efficiency has been a major factor in the decision about what model to acquire. Fuel efficiency in cars and trucks is improving, and as long as consumers demand better and better results, manufacturers will have no choice but to make them.

Doing more with less, energy savings as a means to achieve greater cost savings (both in our businesses and in our homes), and increased fuel efficiency are ideas that have accelerated during the recession. These improvements will allow us to meet future energy demand, but they do not truly get to the question of sustainability.

I'd like to quote from an energy study done at the Atlanta Fed published in 2009 by my colleague Laurel Graefe. She writes:

"The supply of energy as we have known it is in the process of transition. Today's 'easy' conventional oil that the world relies upon as a primary energy source is being depleted, and, regardless of the exact timing of peak oil production—be it this year or fifty years down the road—the world faces the challenge of adapting to a new model of energy supply.

"The underlying issue in the debate regarding energy resource depletion is the fear that the transition from conventional oil to substitutes will be expensive and chaotic, leaving insufficient time for supply substitution and adaptation."

Finding substitutes for our current stock of energy resources is a question for today, not tomorrow. We are taking small steps to meet future demands more efficiently and with less pollution. That progress is all good. But we need to take bigger steps to really address the question of sustainability. More and more people will come to Georgia, and their demand for energy resources will continue to increase. Meeting that demand in a framework of sustainability is the issue of the 21st century.

By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department

• December 2, 2010 in
  • Construction
  • Employment
  • Energy
  • Housing
  • Manufacturing
  • Transportation
• Permalink
• Comments