Lafayette’s oil and gas industry has always had its booms and its busts. That cyclical nature created a sense of inevitability — that what goes down must eventually come back up. Now, the resulting complacency distracts us from rising to meet a generational challenge.
Local industry advocates, business leaders and producers I spoke with say fundamental shifts in the market have turned against our local economy, permanently destroying thousands of jobs and billions in GDP.
Few will admit it out loud: What has been Lafayette’s most important economic sector will likely never recover the ground it lost.
These shifts have been profoundly bad for Lafayette
Over the last few years, fracking has risen to dominate new oil and gas exploration and drilling. It’s cheaper and easier to do than drilling offshore, and shale formations that can be fracked are relatively abundant.
Unfortunately, shale is not abundant in Louisiana, other than in the northwest part of the state. As a result, drilling in South Louisiana has all but dried up. Just take a look at what’s happened to rig counts here over the last few years:
U.S. oil production has been at all-time highs, but drilling in South Louisiana is heading toward zero. What’s left is deepwater drilling offshore, and even that is a shadow of its former self.
Industry sources say the simple fact is there’s no more cheap oil left to drill in South Louisiana compared with other areas. And the economics don’t justify anyone making significant new investments in expanding drilling in the Gulf.
The majority of Lafayette’s oil industry pays its bills by providing personnel, services and equipment to support drilling in South Louisiana. No more drilling means no more work, which has already caused Lafayette to lose more than half of its mining jobs and half of the GDP the oil industry contributed at its peak in 2014.
Even with those declines, industry sources estimate that the majority of the remaining workforce and businesses in Lafayette’s oil industry still rely on income from the drilling that’s still going on in the Gulf.
Even at $100 a barrel, jobs won’t come back
State and federal advocates have criticized President Joe Biden’s policies as a “war on oil” that threatens to destroy Louisiana’s oil industry. These policies include pausing leasing of federal lands that include the Gulf, killing the Keystone pipeline, restoring environmental and safety regulations rolled back by the Trump administration, and threatening to end billions in subsidies for the oil and gas industry.
But so far Biden’s policies are likely to have little near-term impact on Lafayette’s oil industry. Deepwater rigs operate on longer timescales, and deepwater operators bought up a number of leases after the election, so they should have plenty of room to run for the next few years, according to industry sources.
But that being said, no one knows just how far or how quickly Biden will push policies that make it more difficult and less profitable to drill in the Gulf. Ironically, in the short term Biden’s election has actually helped boost the profitability of offshore drilling, as the price of oil has risen from $40 to $60 a barrel since November, which is the price offshore drilling needs to at least break even again.
But more significant than any politician’s policies is the reality that there’s little economic reason for anyone to drill in South Louisiana when there’s cheaper, more abundant oil available elsewhere. And much of the physical infrastructure that supports drilling in the Gulf is old and rotting away. Replacing all of this infrastructure would cost billions, but there’s no way for anyone to justify investing money to do that. Some industry sources are projecting a return to super high oil prices upwards of $150 barrel, but their optimism doesn’t spill over to Lafayette’s oil and gas industry as they think that even this level of oil prices would have little impact on restoring the jobs that have been lost.
A big reason is that technology is a permanent killer. Normally oil companies get bloated during boom times and lean during tough times, cutting jobs and making the remaining workforce do more with less, only to get bloated again when the good times come back around. But this down cycle is different. This time many of those jobs are being replaced by technology. As a result, those jobs won’t all come back even if oil production in South Louisiana does. And this trend will likely only continue to accelerate over time as technology continues to improve.
A generational challenge
Even in a worst-case scenario where drilling in the Gulf ends, Lafayette’s oil industry will likely never go away entirely. There are a number of next generation service companies in town that sell services far beyond the confines of South Louisiana that are not just surviving but thriving. And Lafayette is home to a number of innovators who have created inventions that are used and sold around the world. So it is indeed true that oil will always be a part of the fabric of Lafayette’s economy.
More than 12,000 oil jobs have already disappeared in our metro area, and some in the industry believe that’s a conservative estimate. Billions of dollars in GDP have vanished from the local economy, according to the Bureau of Economic Analysis. Thousands of people are either unemployed, have moved away, or are having to travel elsewhere to find work. Machine shops and warehouses and office buildings and supply yards are empty.
Reversing the math of economic development multipliers, every one oil job supports 3.9 indirect jobs, so the loss of 12,000 oil jobs could mean the loss of tens of thousands of other jobs, where people are either out of work or at risk of being out of work as Lafayette comes to grips with the fall of its most important industry. This is the greatest challenge Lafayette’s economy has ever faced, because it’s not just another temporary downturn but a permanent reduction in our community’s economic capacity.
A reason for hope
I still believe in the potential of our people and our entrepreneurs. I still believe that our future can be brighter than our past. Instead of mourning what we’ve lost, we should focus our energy on how to leverage local oil and gas assets that have been left stranded to repurpose them to new applications that have growth potential moving forward.
What kind of jobs can we recruit or create that can leverage our oilfield talent? What kind of new companies and new industries could take advantage of our empty machine shops and warehouses? What new innovations could be created by tapping into the Cajunuity of our local innovators? These are the types of questions we all need to be focused on, ones I’ll start to explore in my column next week.