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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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