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The key argument often used by natural gas bulls is that the dramatic reduction in rig counts in the dry gas producing shales will translate into a rapid drop off in supply and lead to the price recovery toward the $5 level, and possibly higher. The Haynesville shale, where the rig count has declined from the peak of over 180 rigs two years ago to approximately 27 currently, is often presented as the most compelling evidence supporting that argument.

The view has been advocated by several prominent industry CEOs, including Chesapeake’s Aubrey McClendon and Ultra Petroleum’s (UPL) Michael Woodford. During Ultra’s 2Q earnings conference call on August 2, Michael Woodford re-iterated his macro perspective on natural gas: “Capital is being withdrawn from natural gas investment as seen in the rig count reduction and pressure pumping softness. Production lags capital expenditures and the decline in production is imminent. We see $4 gas in 2013 and $5 gas in 2014.” With regard to Haynesville specifically, he commented: “We have a view that says: production supply is about to shrink pretty rapidly. I think there are some comments out yesterday, with some companies that announced and talked about the Haynesville, that they would see a 10% per quarter reduction in their production. I think it is plus or minus 40% for the year. If you apply that to the 6 Bcf per day of Haynesville production, it is 2.5 Bcf per day of annual rate reduction, so I think we are about to see a drop off in supply.” Michael Woodford was referring to the earnings call remarks by QEP Resources (QEP) the night before.

2.5 Bcf per day is a big number, particularly given that Haynesville is just one producing field of many, albeit a significant one. If that rationale held, the $5 natural gas outlook would probably be conservative. However, a more rigorous look at the Haynesville operating data leads to somewhat different conclusions.

In less than four years since its discovery announcement, the Haynesville production went from zero to almost 7 Bcf per day, by some industry estimates, or over 10% of the total US natural gas production, demonstrating the exceptional productivity of this field as well as the scalability of the supporting operational infrastructure including oilfield services, gathering systems, and pipeline off-take. The rig count peaked at about 186 rigs during the summer of 2010 but has been in a steady decline ever since. There are currently approximately 27 rigs working in the play, about evenly split between the Louisiana and Texas portions of the play. Of these rigs, approximately 11 rigs, including 8 run by Anadarko (APC), are focusing on the liquids-rich part of the Haynesville, mostly in Panola County of Texas. The other approximately 16 rigs are targeting dry gas.

Based on the analysis of the well distribution profile by vintage, I estimate that the field-wide base production decline is currently in the 2.5%-3.0% per month range. Applying the decline rate to the estimated base production of 6.5 Bcf/d, the base production drop off equates to 165-195 MMcf/d per month. How many new wells per month would it take to offset the base decline?

For illustrative purposes, let’s assume that half of all wells are being completed in the liquids-rich area or in the less productive Tier II part of the play (to hold acreage) with an average first-month restricted dry gas flow rate of 4.5 MMcf/d per well, while the other half of the completions are concentrated in the dry gas sweet spots and flow at an average first-month restricted rate of 7.5 MMcf/d (my analysis of recent completions data leads me to believe that these assumptions are conservative). This translates into a total of 27 to 33 wells that need to be put in-line per month to maintain the base production flat. In a pad development mode, one rig can yield as many as 10 wells per year. In the delineation mode, rig productivity is lower and I assume a yield of 8 wells per rig-year. These calculations result in a total of 36 to 45 rigs required to keep the production flat, assuming no completions are deferred. These figures will likely decline with time as the operational productivity and completion techniques continue to improve.

The graph below illustrates this analysis. It shows the number of wells added to the “producing” category for the past two years in the Louisiana part of the play (the Louisiana Haynesville data are more available and consistent than the Texas Haynesville data). During that period, the producing well count in the Louisiana Haynesville went from approximately 570 at the end of July 2010 to approximately 2,038 at the end of July 2012. Data is subject to frequent adjustments and reporting delays and therefore should be thought of as approximate. The red line on the graph shows the calculated number of wells that would have been required to be brought to sales during each month in order to keep the Louisiana Haynesville production flat at that time.

During the period from August 2010 through January 2011, the number of new producing wells averaged over 70 per month, or four times the minimum number of new wells required to keep the production flat. As a result, during that period the aggregate production from the field showed strong growth.

Well additions slowed in February 2012 and crossed below the minimum required new wells line in June, for the first time since the field’s inception.

The analysis implies that the field’s production should have grown all the way through May 2012, although the growth pace would have slowed substantially at the beginning of the year. In actuality, Haynesville pipeline deliveries peaked in November-December last year, with the field’s production declining by approximately 0.4 Bcf/d during the first quarter. The difference to the model is explained most likely by the January 2012 decision by Chesapeake (CHK), the largest operator in the field, to curtail as much as 1.0 Bcf/d of its Haynesville and Barnett production throughout the year, with as much as 0.5 Bcf per day curtailed in January or possibly even earlier. Also in January, Chesapeake announced the decision to defer new well completions and pipeline connections whenever possible. Other operators may have joined Chesapeake with similar measures as natural gas prices continued to roll over.

Another important factor in this equation is the inventory of wells waiting on completion or pipeline connection. In the Louisiana part of the play that number stood at approximately 250 wells at the end of July 2012, according to Louisiana Department of Natural Resources (LDNR). In light of the math presented above, this is a significant backlog. Assuming for illustrative purposes that 100 wells, or 40% of the total inventory, will be brought to sales within the next 12 months, the rig requirement is effectively reduced by approximately 10 rigs during that period. While the backlog in the Texas portion of the field is difficult to estimate, it is clear that it is also sizeable.

The staggering conclusion of this analysis is that the 27 rigs currently working in the Haynesville, in combination with some reduction in the drilled but not producing well backlog and the unwind of the production curtailments, may be sufficient to keep Haynesville production at its current level for at least a year, or even longer.

The natural gas industry needs the Haynesville and other dry gas fields to reduce their contribution to the total supply so that the rapid production growth from the more profitable liquids-rich areas can be accommodated. Therefore, more rigs must go on the sideline in the Haynesville and elsewhere so that the production can show tangible declines. That is unlikely to happen with natural gas prices above $4. At that price, dry gas sweet spots in the Haynesville can deliver solid returns (30%+ IRR at the well level, in my estimate). The liquids-rich part of the field will be even more profitable. In addition, the economics of the play will likely continue to improve, due in part to the lower services cost, but more importantly, as a result of the better wells being drilled. Encana (ECA) reports that it has already reached its cost of supply target in Haynesville and can drill economic wells (9% rate of return) even at $3 Henry Hub.

With the well productivity like in the Haynesville, $5 natural gas may not be a realistic economic assumption for the foreseeable future. $4 may also prove to be unsustainable, despite the recent strength of the forward curve.

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The pace of things is a little slower in Mansfield these days.

The drive across town feels a little shorter, the line at the gas station takes a little less time and the parking lots are less crowded every day.

“It’s really been a tremendous change since February,” said Shelby Spurlock, co-owner of Café 171 in Mansfield in northwest Louisiana. “It’s gotten to the point where we wonder if we can keep the doors open or not.”

Café 171 opened in September 2010 when Spurlock and her business partner, Rebecca McDaniel, started serving country cooking aimed at the droves of oil and natural gas workers meeting the booming demand on the Haynesville Shale.

And for almost two years that eatery just inside the DeSoto Parish city’s limits had a house packed with roughnecks, surveyors, supervisors and anyone else working the nearby rigs.

“I just don’t know how long we can hold on,” Spurlock said. “The way things are falling, every day we get closer to nothing.”

The price of natural gas has fallen to dramatic lows over the past six months.

Since 2009, the words “glut” and “overproduction” have been floating around the oil and natural gas industry, said Ragan Dickens, north Louisiana director for the Louisiana Oil and Gas Association. When things really turned sour is a matter of whom you ask, he said.

In 2008, 82 percent of U.S. rigs were producing natural gas while prices ranged between $8 and $12 per million British thermal units (MMBtu), according to Louisiana Oil and Gas Association President Don Briggs. Now only 27 percent of rigs are producing natural gas and prices are near $2.70 per MMBtu. Those prices will need to return to at least $4.50 per MMBtu before serious activity is expected to return to the Haynesville Shale, Briggs said.

“Companies can’t drill for natural gas at these prices,” Briggs said. “But it’s important to understand the Haynesville Shale will continue to be a major supplier of natural gas for our country for at least another 10 to 15 years. It’s still the largest discovery in the United States.”

Meantime, Briggs said, oil and natural gas companies will be seeking more lucrative activity on liquid-rich plays, particularly the Eagleford Shale in Texas. And they’re taking their workers with them.

That’s the way things go, said Mansfield’s B-N-L Tire and Auto Service owner Greg Dyess. “I’ve been here 16 years, and I’m used to the ups and downs. That’s business, but we’re still going to be around.”

For about four years Dyess said his business saw a boost from outfitting trucks, trailers and other vehicles working the Haynesville Shale. He’s seen a significant drop in business recently but said local customers always have been his foundation.

“I figure it’ll be back up again eventually,” Dyess said. “Once the prices get up, it’ll be back again.”

In Bossier City, Key Energy district manager Buddy Terry said there’s hardly enough work hauling “fracking” water to go around. “The only thing that’s going to help anyone is the price of natural gas going back up,” he said. “We had to make a change. Our yard wasn’t making the kind of profit we need to stay in business.”

And while there were no layoffs, Terry said, several supervisors were offered positions as truck drivers while business is slow. They left for other companies, he said.

Other trucking and supply companies have packed up and moved on. The reduction in competition has helped, Terry said, but things still are slow.

And the impact goes beyond those directly employed in the oil and natural gas industry.

From a peak of 60, the number of residents at Davidson RV Park in Mansfield has fallen to 12, owner Robert Davidson said. About 90 percent of that loss pulled out over one week in March, he said.

Since opening in 1978, Davidson said, his park has never been so empty as without the oil and gas workers. “With what I’ve got, I’m not making much at all,” Davidson said. “I’m not griping, though, because the past few years have been so good. I didn’t blow all my money, put it that way.”

Chesapeake Energy Corp. employee Tim Farrington has watched as many of his co-workers and competition moved on from Mansfield to more active oil and natural gas plays.

“It’s kind of sad now,” Farrington said. “It’s slowed down quite a bit, and nobody saw that coming. You see it all over town from traffic to housing. Everything was coming here for a long while,” he added. “But we still have the basis for production, so it’ll be easy for it come back.”

Farrington has eaten at Café 171 at least twice a week for almost two years. At its peak, Spurlock said, the restaurant was feeding 160 to 250 people a day. Now a majority of the tables remain empty even through the lunch hour.

“I can’t say if we’ll have enough support just from the locals,” she said. “We’ll either have layoffs or we’ll close the doors. We’re just trying to hold out until (natural) gas prices go back up.”

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For over a hundred years in America, coal has been one of the leading sources for power generation. As the Industrial Revolution brought about changes to our transportation, agriculture and manufacturing systems across the United States, coal stepped in as the leader helping to phase out steam power. While coal has served it purpose, we are now seeing a potential rewrite in our nation’s energy future as natural gas emerges as a new player in power generation.

For the first time in United States history, last month natural gas generated as much electricity as coal, representing one-third of all US power. What does this mean for our state and our country? First, we have to understand that natural gas is now readily available here in Louisiana, and across the US. Louisiana boasts the largest producing natural gas field in the United States known as the Haynesville Shale. The Haynesville Shale is merely one of many producing natural gas fields in America. According to the IPAA, over the next twenty years, 49% of our nation’s natural gas supply will be attributed to the shale plays in the US. This homegrown natural gas will also help our nation transition from our dependence on foreign resources to fuel our country.

While the availability and abundance are important factors, natural gas is also a cleaner burning fuel than coal. Lawrence Cathles, a professor at Cornell University recently conducted a study taking a closer look at natural gas usage. He says, “Replacing coal with natural gas would cut about 40 percent of carbon emissions. When you burn natural gas it’s a cleaner burning fuel.” The oil and gas industry typically receives much negative press regarding the environment, but the numbers surrounding the cleanliness of natural gas speak for themselves.

Finally, what else makes natural gas the major player that it has become? The advanced technology of hydraulic fracturing and lateral drilling has revolutionized the oil and gas industry. It is now estimated that nearly 85% of all wells drilled today are completed using the method of hydraulic fracturing. While this process began in 1947, we have this spike in hydraulic fracturing due to technology, yes, but also due to the numerous shale plays that stretch across the US. As with many developing technologies, comes scrutiny by the federal government as well as the mainstream media. However, multiple federally funded studies have shown that there are no risks associated with hydraulic fracturing.

Natural gas is, no doubt, a game-changer for the energy future of the United States. As natural gas is a clean, readily available and abundant resource, it has the potential to surpass coal as the chief generator of power.

While this potential transition from coal to natural gas will not take place over night, the shale developments will continually offer a supply of natural gas that makes a transition truly possible. But as with any resource, responsible development and conservative consumption will play as a key factor as to when natural gas becomes THE resource for our nation.

Written by LOGA President, Don Briggs.

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Apache Corporation (NYSE, Nasdaq: APA) was joined by the Lafayette, La., city-parish president and other local dignitaries to commemorate the opening of the company’s first public-access compressed natural gas (CNG) fueling station in Louisiana.

“The state of Louisiana is a leader in supporting increased use of natural gas,” said Rod Eichler, Apache’s president and chief operating officer. “The addition of this CNG fueling station in Lafayette is a step toward building the infrastructure needed to fuel America’s cars and trucks with natural gas, a cleaner-burning and abundant domestic resource.”

Eichler and several Louisiana dignitaries attended the opening ceremony held at the Apache-branded station at 515 East Verot School Road. The event showcased a variety of natural gas-powered vehicles, including some of the city’s natural gas-powered buses. Lafayette is in the process of converting its entire fleet of buses and many of its city vehicles to natural gas power.

Dignitaries on hand to show their support for the station included: Joey Durel, Lafayette city-parish president; Keith Mosing, chairman and CEO of Frank’s; Rob Guidry president and CEO of the Greater Lafayette Chamber of Commerce; and Gifford Briggs, vice president of the Louisiana Oil and Gas Association, which has been a strong partner with Apache in its efforts to increase the use of CNG in vehicles.

“The infrastructure investment to enable Lafayette’s deployment of CNG is critical,” Durel said. “This investment is helping to forge partnerships, both public and private, that are decreasing the operating costs of private companies and governments in our area. Congratulations to Apache, and thank you to our many partners who are helping to ensure that this investment will be a true success for all of Lafayette.”

Guidry said the station helps provide momentum for increased CNG conversion.

“This event reflects a major advancement of the Chamber’s goal of expanding the market for CNG,” said Guidry. “Apache’s leadership in investing in this infrastructure provides strong impetus to those considering conversion programs.”

The site of the station was chosen in large part because of its proximity to a concentration of large public and private natural gas fleet vehicles. Apache’s CNG fueling station will provide local government, private industry and the public with an economic and environmentally friendly alternative to gasoline.

“Frank’s is pleased to do its part in getting this natural gas filling station opened,” said Mosing of Frank’s, which provided the land for the Apache-branded station. “There is an abundance of natural gas available and I believe we are heading in the right direction to continue to develop and use natural gas as a fuel source.”

CNG-powered vehicles showcased at the event included:

Lafayette City-Parish bus

Lafayette Parish Sheriff’s patrol car

Frank’s 3/4-ton Chevrolet field service truck

Apache Corp.’s Tahoe and Chevrolet Silverado

Ford Westport LD OEM F-250 truck

LEAM Drilling service vehicle

Ford Expedition of Gifford Briggs, vice president of the Louisiana Oil and Gas Association

Acadian Ambulance as converted by Tony Parich, owner of Control Tech.

The station boasts two dual-hose fueling dispensers capable of fueling four cars simultaneously at a rate of three-to-four gallons equivalent per minute. The self-service station accepts a broad range of credit cards, as well as standard fleet cards.

The station is unattended, but customers may contact an Apache representative with questions about CNG refueling anytime by calling a toll-free number posted on the fueling pumps.

Apache currently has converted 274 vehicles to run on CNG and plans to convert a total of 350 of its fleet by year’s end. By 2015, the company expects to have 80 percent of its 1,000-plus fleet in the U.S. converted.

Apache also offers financial incentives to its full-time employees who choose to switch to CNG. All full-time Apache employees who purchase a new dedicated CNG vehicle or convert their vehicle to CNG receive a $5,000 Visa credit card for purchasing fuel.

Currently, there are more than 120,000 natural gas vehicles on U.S. roads today and more than 15 million worldwide, according to NGVAmerica. Industry data shows that vehicular natural gas nearly doubled between 2003 and 2009. In 2010, natural gas displaced more than 350 million gasoline gallon equivalents. The International Association for Natural Gas Vehicles estimates that within 10 years there will be more than 50 million natural gas vehicles – or, about 9 percent of the world’s transportation fleets – on the road worldwide.

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While the latest buzz is centered on the “drop” in gasoline prices, reality indicates that gasoline is still well over $3 a gallon. These prices translate to continual pain at the pump causing many drivers to rethink their daily driving schedule.

With the price of crude oil hovering in the mid $80s, gasoline prices will not be coming down to a reasonable point any time soon. An obvious answer to this national problem of high gasoline prices should be the use of natural gas in America’s vehicles. Daily news articles across the country are constantly stating and or complaining that America has a glut of natural gas from the shale boom that has been taking place over the last four years. How can this glut be used for the country’s good?

Natural gas can be utilized in a vehicle in two ways: compressed, or CNG, or liquefied, or LNG. CNG and LNG are two terms that get tossed around in the media, but with little explanation to the consumer as to what they are, how they can be used, and what cost and savings are involved when using them.

CNG is typically used in lightweight and medium-duty vehicles, such as a Honda Civic or a Chevy, Ford or Dodge truck. Tanks are installed in the trunk of a car or in the bed or a truck from the factory, or can be installed by a licensed professional after market. While the initial costs for a new vehicle equipped with a CNG tank are around $10,000 to $12,000 more than a standard gasoline vehicle, state tax rebates are available in Louisiana and other states that reduce the cost significantly to the consumer.

Any additional costs left after the rebates are recuperated in a minimal time due to the drastic savings at the pump. CNG is selling for around $1.75 per gallon as opposed to the over $3 per gallon one pays in regular gasoline. CNG home-pumping stations are also available, again, with tax rebates accessible to recuperate the expense of the home unit.

A gallon of CNG dispensed into your vehicle from a home unit is less than 50 cents per gallon. The savings are quite obvious once the numbers are compared between CNG and gasoline.

Liquefied natural gas is another avenue for our natural gas supply to be used in the vehicles that drive our nation’s economy. LNG is typically used in large eighteen-wheelers, construction equipment, locomotives and barges that travel our waterways. While LNG requires larger tanks and is more user-friendly for larger scale vehicles, it also is a better fuel for high-mileage travel due to the process to which it is burned in the vehicle.

LNG and CNG are not only cheaper fuels, but they also burn at a higher octane level than gasoline giving a longer lifespan in the engines to which they are used. While price and quality are important factors to consider, the most important element to keep in mind is that natural gas is produced right here in Louisiana.

Don Briggs is president of the Louisiana Oil and Gas Association. His column is published every other week.

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Louisiana as a whole is “way behind” on the use of compressed natural gas as a cheaper and cleaner fuel for vehicles, but leave it to Lafayette to once again distinguish itself a leader in the state for its efforts to lower the city’s carbon emissions with CNG-run government vehicles and natural gas fueling stations for the public.

Lafayette Consolidated Government Planning Manager Mike Hollier says the city is roughly 2.5 years into its five-year plan to convert all of the city’s buses and most city-owned vehicles (more than 100) to run on CNG.

The benefits for the city and its residents are two-fold, Hollier says, because CNG is both cheaper (about $1.80 per gas gallon equivalent) and helps to lower the EPA-monitored carbon footprint in Lafayette.With grant money in place from both the state and the federal government, Lafayette has already converted five of its buses to run on CNG. Hollier hopes to have more than 100 city-owned vehicles converted to CNG within two years, while also working with UL Lafayette and the Lafayette Parish School System to have their transit buses running on the clean-burning fuel within the same time frame.

The city currently has two CNG fueling stations in operation — the privately owned Apache station on Verot School Road and the LCG-owned station at the public works facility — and a third slated to open in the next few months. That one, on North University Avenue, will be LCG-owned and open to the public. The five-year plan, if successful, will also bring a third public fueling facility (Apache is open to the public) to an undetermined location along I-49 or I-10.

“After two years and a lot of study, it was decided that CNG was the way to go both in the short term and the long term,” Hollier says. “There’s a very positive cost benefit. There’s an additional capital outlay up front, [but] once you make those conversions, the benefits begin to pay off in a matter of years.”

Louisiana is the nation’s top producer of natural gas, according to Louisiana Oil and Gas Association Vice President Gifford Briggs, a factor Hollier says played a role in the city’s decision to invest in CNG.

“It’s home-produced and readily available all around us,” Hollier says.

CNG conversion is a no-brainer for oil and gas industry advocates like Briggs, who notes that the U.S. has a 100- to 150-year supply of natural gas.

Briggs, who commutes daily from his home in Lafayette to the LOGA office in Baton Rouge, has so much faith in the future of natural gas he decided to “put his money where his mouth is” and converted his own Ford Expedition to a “bi-fuel” SUV that runs on both gasoline and CNG. The LOGA lobbyist is able to take advantage of two different types of CNG fueling stations — the Apache station on Verot as well as a home fueling station that’s been installed at LOGA’s office, the Jimmy Davis House in Baton Rouge.

“Apache donated the whole thing,” Briggs explains. “For all practical purposes it’s a box with a hose coming out of it that’s connected to our natural gas line. It’s similar to what we’d do to electric vehicles.”

Money, however, is one of the reasons natural gas hasn’t taken off as quickly as many had hoped in terms of replacing gasoline as the primary means of fueling vehicles. As a recent Wall Street Journal report notes, government agencies using dump trucks, buses and other gas guzzlers and heavy polluters are more eager to jump on board with the start-up costs that come with CNG conversion. The average American is less enthusiastic about conversion costs that run in the thousands, and before recently factories weren’t even churning out CNG-ready vehicles for consumers to consider.

But the nation and Louisiana are finally catching up with the rest of the world when it comes to CNG, Briggs says, with Ford, Dodge and Chevrolet all slated to place bi-fuel pickup trucks on the market soon, albeit in limited availability.

The 100 percent CNG Honda Civic could be available for purchase at Moss Motors within six months thanks to the Apache CNG station that recently opened and the plans for more CNG stations to come. Briggs notes that Honda does not allow dealerships to sell the CNG model unless there’s a fueling station within 25 miles.

“We have enough natural gas to fuel transportation infrastructure, and we rely heavily on oil from countries outside the U.S.,” Briggs says. “It’s cheaper; it’s better for the environment. It seems like it’s such an obvious win for Louisiana because we could very easily become energy independent.”

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An abundance of natural gas found in shale deposits nationwide and the sideways hydraulic drilling technique known as “fracking,” which makes it extractable, are poised to strengthen Louisiana’s industrial base, boost exports and create 35,000 jobs in the state, according to an October report released by the American Chemistry Council.

Petrochemical companies along the Mississippi River corridor use natural gas as a feedstock to make plastics and other materials used in everyday products.

On one hand, cheap natural gas lowers production costs. On the other hand, Europe uses more expensive oil as its feedstock, which allows regional companies to export oil competitively.

“Heavy industrial is the gorilla in this economy,” says Scot Guidry, an agent with Mike Falgoust & Associates. “And when they are up you can feel it.”

That strengthening gorilla has helped put a silver lining in industrial real estate, which still has a higher-than-average vacancy rate, hovering above 14%—a neighborhood where it has been stuck since 2008.

“That’s not good,” Guidry says. “What’s good is less than 10%.”

However, inventory last year shifted from the negative to the positive within the 25 million square feet of industrial space in the corridor, with 220,945 square feet of space absorbed compared to the 62,748 square feet vacated in 2010.

At the same time, industrial stalwarts and out-of-state newcomers are moving in together and sharing space, or simply merging or buying one another up, Guidry says. Southwest Stainless and Sunbelt Supply are prime examples of that type of merger, moving together in May into a new building of about 100,000 square feet at Perkins Road and Pecue Lane.

“Now we’re trending down to a lower vacancy rate,” Guidry says, “even with these companies vacating space to go into bigger buildings.”

Yet Guidry believes the vacancy rate will remain above 10% for the next two years, with mainly owners of smaller buildings (5,000 square feet to 10,000 square feet) making landlord concessions to tenants who still remain leery of long-term leases.

Land sales will remain stagnant as sellers cling to post-Katrina property values despite the high number of vacancies, according to the Greater Baton Rouge Association of Realtors.

If abundant natural gas is the gorilla, then the Tuscaloosa Marine Shale—stretching with oil north of Clinton to Wilkinson County Mississippi—may be the sleeping giant that could cause the Greater Baton Rouge area to rise from the post-recession doldrums if extraction proves profitable, according to Guidry.

“If it does, I don’t know how big the impact would be compared to Shreveport’s (Haynesville Shale formation of natural gas), but that would provide the need for service companies,” Guidry says. “So you will have a demand for office space, warehouse space, yards and equipment.”

Already, Guidry says, there are three to four companies with test wells in the Tuscaloosa Marine Shale producing oil and running the logistics of extracting it from the ground. As a caveat, Guidry suggests much of the area might not be zoned properly for growth if demand for property explodes following positive results on Tuscaloosa wells.

With or without the Tuscaloosa, and bearing in mind that natural gas remains cheap, the old stalwart petrochemical companies and newcomers like steelmaker Nucor are expanding and attracting subcontractors that work in plants: pipefitters, engineers, environmental cleaning services, construction contractors, welders and safety technicians. “That’s all growing,” Guidry says.

5 THINGS TO WATCH
TUSCALOOSA MARINE SHALE
 A deep reserve of oil in a shale formation in an area extending from central Louisiana to southwestern Mississippi has been known about for years but has recently raised hopes of turning profits with improved technologies in a drilling technique known as “fracking.” In May, Goodrich Petroleum announced acquiring 17,000 more acres in the play, while Devon Energy announced producing about 259 barrels of oil with a new horizontal well. “We know that this formation has vast potential to provide domestic energy for this nation, and jobs and economic growth for this state, but it will take companies time to learn and perfect the most effective means of drawing out the oil and natural gas locked within that shale,” said Scott Angelle, secretary of the Louisiana Department of Natural Resources, in May.

PLANT EXPLOSIONS 
NuStar Energy has begun a $365 million expansion at its crude oil terminal in St. James Parish, increasing its storage capacity from 8 million barrels to 11 million barrels. Ormet Corp. is reopening an alumina plant in Ascension Parish with a $21 million investment that will create more than 240 new jobs averaging about $57,000 in annual wages. BASF is investing $20 million into its Vidalia plant. Louis Dreyfus Corp. is making $200 million in improvements to its grain elevator at the Port of Greater Baton Rouge. And Nucor Steel is in the $750,000 phase of its $3.4 billion project in St. James Parish, which could produce 1,250 direct jobs at its facility. In Ascension Parish alone, 10 plants announced expansions that are together worth more than $1 billion.

NATURAL GAS PRICES 
Cheap, abundant natural gas is driving the industrial sector and helping lower real estate vacancy rates from their peak in 2010. But the energy market is finicky and can change at any moment. “Heavy industrial [real estate] can turn on pretty quick and it can turn off just as quickly,” warns Scot Guidry, an agent with Mike Falgoust & Associates. An uptick in the natural gas market could slow recovery while the rest of the economy slowly lifts itself up from the recession. “If [natural] gas prices spike real high in the next couple years, that could have an impact on it,” Guidry says.

SCRAP METAL ON THE MOVE
 Louisiana Scrap Metal Recycling has begun construction on a new 26-acre site on the Intracoastal Canal in Port Allen. Barge access will allow the facility to grow operations and exports.

RAILROAD EXPANSION
 Union Pacific Corp. is investing $200 million into a new expansion, including a rail yard in St. James Parish and 29 miles of new track from Livonia to Addis. At its peak this June, the expansion is expected to create 1,500 jobs while permanently bringing on board 225 new jobs averaging about $45,000 in annual wages.

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East Baton Rouge is attempting to go green, and it’s starting with its vehicles.

Department of Public Works Director William Daniel said the city-parish is beginning the process of transforming its vehicles into a fleet that’s run by compressed natural gas.

Natural gas is a less expensive alternative fuel source to diesel and gasoline, and its harmful emissions are lower, Daniel said.

“We can save money (on fuel costs) and serve the people of the parish more efficiently by doing this,” Daniel said, noting that the switch is part of Mayor-President Kip Holden’s sustainability plan for city-parish government.

The city-parish selected a consultant, Professional Engineers Consultants Corp., to oversee the transformation, Daniel said. The contract is still in negotiations and will go before the council for approval within the next few weeks.

Next, the city-parish will seek requests for proposals from contractors. Costs, funding strategies, the time line and scope will be determined by the contractor who lands the bid, Daniel said.

There are hundreds of vehicles operated by the city-parish, but the contractor will ultimately recommend how many vehicles and what departments should be converted to CNG, Daniel said.

David Guillory, assistant DPW director, said his agency will be particularly interested in replacing its maintenance and operations vehicles, which include heavy dump trucks, tractors and large pickup trucks.

“We do have a lot of passenger vehicles, but it’s the heavy-duty pickups that we’d really like to save on fuel and burn cleaner fuel sources,” Guillory said.

The initial investment to convert to CNG is expensive because it requires new vehicles and fueling stations.

Gifford Briggs, vice president of the Louisiana Oil and Gas Association, said it costs about $10,000 to convert a vehicle to CNG, and fueling stations are between $1 million and $2 million to build.

Daniel said he expects there will be federal and state funds available to assist with financing. Also, he said, the city-parish could make an arrangement with the contractor to finance the project through the city-parish’s expected fuel cost savings over several years.

Briggs said CNG costs about $1.79 per “gasoline gallon equivalent,” and can run as cheap as 50 cents a gallon equivalent if an entity is using its own fueling station.

Baton Rouge follows in the footsteps of Lafayette and Shreveport, which already have some city buses that run on CNG.

Baton Rouge’s bus system, the Capital Area Transit System, is quasi-independent from the city-parish and has opted to pursue hybrid-electric buses rather than CNG partly because of the initial investment.

Lafayette also has about 41 other “nonbus” vehicles, Briggs said, ranging from police to public works vehicles, that use CNG.

But Briggs cautioned that it does not always make financial sense to convert.

“It depends on the source of the funding, and it depends on the mileage that a vehicle travels in any given year and how much fuel they consume,” he said. “If you’re using local or state tax dollars it may not make much economic sense because of the conversion costs.”

Briggs said converting makes sense for the “heaviest users of fuel,” which includes buses, street sweepers, garbage trucks and vehicles that travel more than 12,000 miles per year.

But, he added, “if the money comes from a grant, and you get the conversion costs for free, then anything makes sense because you’ll save on fuel regardless.”

Briggs said there should be plenty of federal funding opportunities for the city-parish, noting that when federal stimulus money was made available to the state in recent years, there were not enough applicants to spend the money.

Baton Rouge has a few CNG stations already, Briggs said — including at least three that are run by Entergy.

The city-parish also has a CNG station that was funded by a grant more than five years ago, Guillory said.

The grant also paid for five Honda Civics that run on CNG and are used by DPW inspectors.

But, Briggs said, the technology has changed since that station was built, and CNG vehicles are now built differently.

He said those cars have smaller fuel tanks than new CNG vehicles, and the station fuels cars very slowly.

Daniel said he hopes the first phase of the conversion will begin by next year.

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