Louisiana economy to recover slower than other states, economist says, because of oil’s decline

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BATON ROUGE, La. (Livingston Parish News) – The governor’s ‘Resilient Louisiana’ task force have their first, public group meeting Thursday morning at 8:30 a.m.

It will be the task force’s job to establish a process for individual industries reopening amid the spread of the novel coronavirus, and how best the state can help the economy restart.

Nationwide, states are looking for ways to reboot their economies by following the initial 14-day plan, which requires a downward trend of all COVID-19 related metrics, and then standing up industries one-by-one.

Currently, the national GDP faces a reduction of over 20% in Quarter 2 due to the economic shutdown caused by the coronavirus, with the annual forecast representing a -1.3% – -8.5% by the end of the year. Some economists are predicting at least some form of “V” recovery, which means what goes down must go back up as pent up demand is unleashed when “Stay At Home” orders are rescinded.

PhD Economist Loren Scott, who operates his own economic guidance and consulting firm, sits on the task force and provided some “32,000 feet” metrics that, he hoped, would give the task force a sense of urgency.

“Louisiana’s recovery is going to be held back back the oil industry for awhile,” Scott explained, “due to an unfortunate decision.”

That decision was made by OPEC, a 20-nation conglomerate that operates international oil production. Member nations Russia and Saudi Arabia increased their production in a competition for demand, forcing downward pressure on supplies from other countries.

It drove the price of oil down so far that oil futures entered the negatives. Unlike other states that are also considered hot spots – such as New York, California, and Washington State – Louisiana is heavily reliant on the oil industry, Scott said.

OPEC made the decision to reduce supply to help revitalize the market, but that reduction will not take place until May 1.

The economic uncertainty has pushed several large companies to hold off on liquid natural gas (LNG) projects in the state, totaling $40 billion in construction costs.

But, it doesn’t stop there as oil and gas affect both the state’s budget, and employment. Current unemployment figures for Louisiana hover around 22%, with 349,000 total claims through the beginning of April. The state has issued nearly $561 million in unemployment revenue to claimants through the second week of April, which includes the extra $600 a week from the CARES Act.

Without immediate action, however, the oil and gas industry may start sending more workers into the unemployment line.

“Our industry is on the verge of collapsing,” said Gifford Briggs, president of the Louisiana Oil & Gas Association. “With tens of thousands of jobs and millions of dollars in tax revenue at risk, it is essential for policymakers at all levels of government to implement aggressive and immediate solutions to offset the expectation of prolonged shut-in wells, a massively oversupplied world oil market and the global shutdown of our economy.”

Briggs urged Congress to temporarily eliminate federal offshore royalties in the Gulf of Mexico “to prevent thousands of leases from being shut in.” LOGA also is asking Louisiana lawmakers to “provide immediate severance tax relief,” ease regulations, and find a way to address local government lawsuits against the industry alleging environmental damage to the state’s coastal region.

The domestic oil industry has been hit hard by low prices and the economic slowdown caused by the COVID-19 pandemic. The industry’s struggles in turn create uncertainty in states like Louisiana where energy tax revenue is an important component of government budgets.

The Louisiana Oil & Gas Association recently surveyed its members, which the organization says includes 450 companies across the state. The survey shows that without some kind of emergency relief, energy producers may be forced to shut-in more than half of the wells they currently operate in Louisiana and potentially reduce their workforce by as much as 70 percent over the next 90 days, LOGA says.

According to the Department of Natural Resources, there are 33,650 oil and gas wells currently operating in Louisiana. LOGA says as many as 16,800 of those could be shut in, according to survey respondents.

The operation of these wells directly employs about 33,900 workers according to the Louisiana Workforce Commission’s most recent quarterly report. Based on survey projections, more than 23,000 jobs, which generate $2.2 billion dollars in earnings annually, are at immediate risk, LOGA says.

Briggs says “it’s going to be devastating” if oil prices don’t exceed $40 a barrel by June 1. West Texas Intermediate crude oil on Monday afternoon was priced at $22.40.

“Our members are doing everything they can to keep their doors open and protect their workers, whose livelihoods are at risk,” he said. “We cannot do this alone.”

The state feels the pressure, as well.

Though Louisiana’s state budget isn’t as dependent on oil as it once was, taxes and royalties from oil and gas production bring into state coffers about $750 million annually.

By: McHugh David | The News

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