Get up to date on all of Mississippi’s energy and economic development news. This month we discuss the latest EPA 111(d) proposal and what it will cost Mississippians. We also provide updates on Kemper County, Chevron, and the Tuscaloosa Marine Shale region. READ IT NOW!
IHS Chemical’s Mark Eramo recently wrote, “From 2010 to 2020, IHS forecasts that… North America will re-emerge as a location of choice for new building capacity.” He attributes the resurgence of North American chemical production above production in Asia and the Middle East to the abundant supply of low-cost feedstocks (i.e. natural gas). In chemical manufacturing, energy and feedstock prices can dictate up to 75% of total end product costs, so areas that are in close proximity to feedstock sources or are abundant in energy resources are particularly attractive to chemical manufacturers.[i]
Subsequently, Eramo states that the geographic areas most suited for development will be those that “hold promise for significant development… provided an indigenous supply of competitively priced hydrocarbon feedstocks can be sourced and leveraged.” Mississippi is uniquely positioned to attract attention as a place for U.S. chemical manufacturing capacity additions. These projects are attractive development prospects due to their enormous capital requirements, high construction intensity, and way above average wages for plant workers.[ii]
Traditionally, much of this sector has been based in Louisiana or the Texas coast, and because of the cluster of expertise and existing assets, LA and TX will continue to be the major players in this industry. However, with $100 billion or more in projects to be constructed in the next several years, Mississippi could be a relief valve for these areas as they become congested with construction activity. Some of MS’s strengths include:
Crude Oil and Liquids
Capitalizing on these local resources would establish Mississippi as the ideal location for the expansion of petrochemical production, bringing businesses in high-growth industries to the state for years to come.
[i] “Investment risk for chemical producers”
[ii] Acadian Consulting Group, Research Report: “Leveraging Energy for Industrial Development – A Summary of MEI’s Analysis”
Expert economists at top tier energy consulting firms, Boston Consulting Group and IHS, recently released reports predicting significant growth in U.S. manufacturing. One of the main reasons for this is the U.S. energy supply advantage.
For Mississippi, home to an extensive network of natural gas pipelines and diversity in electric power generation, what does this mean? The Mississippi Energy Institute recently began an analysis to answer this question. To help educate policymakers, economic developers, and the interested public, the Institute is working with Acadian Consulting Group of Baton Rouge to identify specific areas of opportunity to leverage in-state energy supply assets to attract energy-intensive manufacturing.
We think Mississippi may be well-positioned for the manufacturing of natural gas-derived chemicals and other electric power and natural gas intensive manufacturing like heavy metals and food processing. Through the years and growing with recent announcements, a large share of the energy-intensive industry has been, and will remain, in Louisiana and Texas, but those areas may be facing constraint making Mississippi an attractive option.
As the Boston Consulting Group and IHS have noted, the rapidly changed U.S. energy industry is having a dramatic effect on global manufacturing dynamics. For Mississippi’s economic sake, it’s important we try to understand how Mississippi can fit into this energy and manufacturing growth era over the next 5-10 years.
In response to criticism that the DOE terminal approval process is hindering the U.S. from competing globally, Energy Secretary Moniz insisted that the Obama administration is “working hard” to evaluate companies’ bids to broadly export U.S. natural gas at an August 1 press conference.
The Energy Department gave conditional approval to Freeport LNG’s plans to widely export liquefied natural gas from a Quintana Island, Texas facility in May. Now it is vetting an application by Southern Union Company subsidiaries, which asked for permission to export 2 billion cubic feet per day of natural gas liquefied at a plant proposed for Lake Charles, La.
(Update: The Lake Charles site became the third approved LNG export terminal as of August 7.)
As U.S. facilities begrudgingly await their approvals, the world is seeing Japan, the world’s top LNG importer, decrease its demand and Canada upping the ante on beating the U.S. to the export game.
With the potential for a single export terminal to contribute $73 billion to net GDP growth per year (including up to $30 billion in federal, state and local tax revenues*), the heat is on Secretary Moniz and the DOE to maximize the U.S. energy advantage and approve the backlog of 20 applications awaiting approval.
Currently, domestic natural gas prices in the U.S. are considerably lower than gas prices in other parts of the world. The Henry Hub price, which is the U.S. benchmark, is approximately $4 per MMBtu (million British thermal units). The price in Japan has been as high as $16-18 per MMBtu, while $9-10 per MMbtu is more the norm in Europe. Liquefaction of natural gas is an expensive process, however. The construction of facilities, the cooling and transportation of the gas, and the regasification all narrow the gap between U.S. and world prices. Despite these costs, a business opportunity remains.
For Mississippi, with an import terminal in Pascagoula, the question is will the state play a large role in the energy export economy or not? The Mississippi terminal filed an application 11 months ago. If approved, construction would take six and a half years to complete and would require 1,813 full-time jobs.
*Source: American Petroleum Institute, U.S. LNG Exports: Impacts on Energy Markets and the Economy http://www.api.org/~/media/Files/Policy/LNG-Exports/API-LNG-Export-Report-by-ICF.pdf
The Wall Street Journal recently published a special report on the U.S.’s most pressing energy concerns with industry analysts offering differing solutions.
One of the issues addressed was how to deal with the country’s used nuclear fuel. In what has been an ongoing national policy issue since the early 1980’s, the pressing question of “how to manage the country’s used nuclear fuel” under a consolidated management approach still remains. In 1982, it was decided that used fuel, after one cycle through a power plant, was to be stored deep underground, and in 1987, Yucca Mountain was determined to be the location. In 2010, the Obama administration eliminated funding to Yucca, and the site was shut down.
Today, used fuel from nuclear power plants is typically stored at plant sites. While the 104 nuclear power plants in the U.S. have been operating for decades, the volume of used fuel is not great, due to the production efficiency of nuclear fuel. Here at home, Entergy’s Grand Gulf plant currently stores used fuel onsite like most other sites. Some say all the used fuel stored at plants today would amount to a 15 ft. high stack covering one football field.
The consolidated management approach decided three decades ago remains the right policy today, but we should consider a change in policy around the fuel cycle. The “once through” fuel cycle adopted decades ago results in leaving about 90% of the energy value in the fuel source, so the used fuel stored around the country represents enormous energy value. Technology development now allows for more complete utilization of nuclear fuel and should be available as part of a fuel disposal strategy. Options include recycling and new reactor technology. Flexibility in policy to allow utilities to take advantage of current and future options makes sense.
Nuclear power is a critical part of U.S. baseload electric power infrastructure and is the most scalable form of carbon free energy. Development associated with nuclear energy yields high local tax revenues due to its capital intensive nature and high paying jobs. For Mississippi, developing more of a footprint in the nuclear power industry is a long-term, grand opportunity for the state and one that communities and our state leaders should consider as a strategic area of focus.
Most of the American public probably hasn’t grasped the significance of unconventional oil and natural gas development. While remaining cautious about the potential volatility of commodity markets is wise, many see new energy development opportunities having a long-lasting impact on markets. NBC News recently provided a good overview of how the energy boom is beginning to ripple through the US economy. Without a boom in US energy production, which has far reaching impacts, we should wonder what shape the economy would be in today.
Energy policy in Europe has resulted in high energy costs and unreliable delivery of electric power. As Mississippi seeks economic development opportunities, targets should include manufacturers in Europe and other places around the globe with high energy costs and little to no reserve capacity. Lance Brown writes, “In the United Kingdom, the nation’s official energy agency is warning that the UK could run out of generating capacity in the winter of 2015-2016. The culprit? Reserve power capacity in the UK will drop from a robust 14% to just 4% in the next three years because of the closure of coal-fired power plants. Investing in less reliable sources of energy will not only mean possible outages on the island, but an increased reliance on imported natural gas.” Read more here.
Small town Caledonia, MS, (population: 1,041) said yes to more energy. The town’s Board of Alderman voted to allow horizontal drilling within their city limits. While this isn’t a lucrative business deal and no drilling has taken place, this is somewhat symbolic of Mississippi’s acceptance of energy projects, while similar projects are being shut out in other parts of the country (see New York state). (Fun fact: the first horizontal well in the state was two miles west of Caledonia in Maple Branch.)
While board attorney Jeff Smith said the lease does not necessarily mean the company will drill, this is still a significant event as horizontal drilling has come under fire recently with the shale explosion- which some could argue has saved the U.S. economy. Even Hollywood has given its two cents with Promised Land, a film that depicts a fictional small town struggling with the issue of whether or not to allow a corporation to come in and do horizontal drilling in exchange for lucrative leases. For the record, I have seen the film and was pleasantly surprised to find that in the end the villain isn’t who the commercials and propaganda have you to believe. After conducting research as to why this seemingly anti-fracking film contained such an un-even, out of nowhere plot twist, I discovered that the screenwriters re-wrote the ending last minute after the EPA issued a report that it had mistakenly determined water in Dismock, Pennsylvania to be contaminated by horizontal drilling in the area (the fictional small town portrayed in the film is said to be based on Dismock.)
Regardless of Hollywood’s failed critique and the EPA’s latest report, anti-drilling supporters continue to claim that the process contaminates drinking water.
Ed Hollingsworth, a geologist with Fletcher Petroleum who has been in the industry since 1981, said he has yet to see drinking water contaminated by horizontal drilling.
“I’ve been involved with probably 100 or so wells in the water basin, probably 90-99 percent of them have been fracked, and I’m not aware of one complaint from any surface owner that we damaged city, town or individual water wells.
“I think that’s a pretty good record,” he said
In addition to the state’s good record, it’s reasonable to assume that the board also realizes the positive economic impact the industry could have on that area as well as the introduction of countless job opportunities. Also, in small town Mississippi, people understand the benefits of more energy – it means good job opportunities for a family member or a neighbor down the street.
Horizontal drilling has been around in Mississippi for 60 years and hasn’t traditionally run into much in-state opposition, and this move by the Caledonia board is just another example of why energy companies should consider locating to Mississippi, a state aptly referred to as the Hospitality State.
As Mississippi considers energy as an area of focus for economic development, we must understand Mississippi’s energy strengths and weaknesses in order to leverage our strengths and fill gaps in critical areas of weakness. Below you will find examples of one strength and one weakness.
In today’s cautiously expanding economy, the shale revolution has been a very bright spot in the economy, maybe the only bright spot. Oil and natural gas production from shale formations has truly been a game changer for the U.S. economy and without it over the past several years, who knows where the economy would be today? Possibly back in recession. One area of strength for Mississippi is the abundance of interstate natural gas pipelines passing through the state. Why is this a strength? Because it gives our state the ability to access enormous natural gas supplies needed for manufacturing. The shale revolution and abundant U.S. energy supply provides the opportunity to see a resurgence in manufacturing, especially energy intensive manufacturing. Hopefully, our leaders in Washington, D.C. will embrace this and not waste away the opportunity with onerous regulations and taxes that send jobs to our global competitors. Mississippi policy and development efforts should consider how to leverage our natural gas assets for manufacturing expansion.
As with most any area of the economy – telecommunications, healthcare, agriculture – technology in energy continues to change rapidly, offering more and better options to the marketplace. Technology development in energy is focusing not only on how we get energy but also on how we use it. The sheer size of the market drives technology development for those looking to capture a small share of an economic necessity. In 2010 dollars, the size of the world energy economy was $6.5 trillion, so capturing 0.1% of the market is a $6.5 billion proposition. The point is, with global demand ever climbing and a competitive economy always looking for better solutions and lower costs, technology development in energy is very active. The problem is, Mississippi has a poor record of attracting private R and D capital, and thus, has poor metrics in recent years for technology commercialization. Publicly funded research at universities has resulted in good public research capacity, but private R and D activity is quite low. If Mississippi is to play a significant role in tech-based economic development, the ability to attract private R and D and commercialization capital must be considered.