|
About the Institute
Programs
Projects
Research Reports
Events
Speakers
Advisory Board
|
|
Projects
A core competency of the Energy Institute is the ability to conduct and publish great research. The faculty and staff of the Institute conduct research on a broad range of energy-related issues and topics funded from a broad range of sources. Having an energy related "think tank" positioned at a major research institution in the heart of the energy rich Gulf South region is quite appealing. The establishment of the Energy Institute at Tulane has the potential of creating a nationally recognized center known for producing insightful and high quality applied research. An ability to demonstrate expertise with meaningful products that are published and relied upon by industry, regulators, and others is centric to the Institute's recognition and credibility. Faculty at major research universities have on-going research programs supported by various sources, predominantly from competitive grants and contracts and to a lesser degree from endowment income and industry-sponsored projects. The Institute periodically supports research projects and provides funds to assist faculty associates in obtaining research grants and contracts.
Gas Spot Prices
We are developing data in support of a study of the basis differential between gas sold in Louisiana and that sold in South Eastern Texas. Over the last year, the price on gas sold at the Houston Ship Channel Hub has been as much as $2.00/mcf lower than gas sold at Henry Hub, in Louisiana. On a preliminary basis, we have established a high degree of correlation amongst the relevant hubs in each state, but a lower correlation between the two major state hubs. We hypothesize that one of two mechanisms are active. One mechanism that might explain this is that Louisiana has become increasingly dependent on gas from Texas, a result of long term declines in local and Gulf of Mexico production, exacerbated by two hurricanes in the second half of 2005. In this scenario, we see capacity limitations developing in the pipelines that deliver gas across the state line which creates stranded gas (low prices) in Texas and rationed gas (high prices) in Louisiana. When operating below capacity, the ability to arbitrage forces the basis to tend towards the minimum cost for transporting the gas between the states. A second more sinister mechanism is also possible. That is, that the contractual holders thru put capacity might be colluding to reduce available capacity for gas movements to Henry Hub, in an effort to maximize gas prices elsewhere. In this scenario, a relatively few companies agree to restrict available pipeline capacity at the state border. This limits supplies to Henry Hub, a location that, according to its owners can only handle 1.8 bcf/day of gas. However, once the price at the hub increases then that increase ripples throughout the country effecting all spot gas trades that are based on Henry Hub spot prices, something on the order of 65 bcf/day. One could argue that it also affects all futures contracts as well. In either case, the viability of the gas and electricity based petrochemical business located in Louisiana is adversely impacted. Not only are export markets curtailed, but domestic consumers will prefer supplies from the state with the cheaper gas source. Our goal in this first survey is to quantify the differences and then attempt to establish a pattern for when the high basis pricing is occurring. We might then be able to examine the individual pipelines in order to determine whether pipeline constraints are occurring because of natural phenomena or are being manipulated.
Jobs and Economic Recovery in Louisiana
We have been tracking monthly data on employment within Louisiana using data that is available from Louisiana's Labor Department. Our goal is to establish the effects of the 2005 hurricanes on specific communities in the state as well as to examine regional effects. We are not using unemployment rates because they ignore job losses which job losses which are at the core of our recovery challenge. Rather, we are tracking total jobs by location and by category in order to be able to detect the hoped for turn around (we are still losing jobs in the New Orleans area) and to then forecast economic recovery. (At this point we are down about 200,000 jobs in the state with the majority being jobs in the New Orleans RLMA) In this effort, we are working with faculty members at the College of Charleston and at LSU. The Charleston group generated a similar study after hurricane Hugo in which they tracked changes in the local and state economy against a model prepared by the University of South Carolina which allowed them to develop a base case forecast assuming all exogenous variables remained the same, but that there was no hurricane. They then defined recovery as the point when various sectors returned to their long term trend lines. LSU is a partner because they have a functioning economic model for the state which we believe can also be used to predict a multiyear "no Katrina or Rita" forecast. We will then track actual results in order to determine the timing of recovery for various sectors. In the Charleston case, sectors like construction and forestry were the first to positively respond. Construction income bounced back because of spending on repairs and replacement supported by insurance proceeds. Forestry initially improved because of a massive salvage operation which radically increased the harvesting of pine trees for the paper industry. That sector then reached a plateau, influenced by "wealth destruction" associated with the severe damage to the state's forestry stocks. In effect 20 years of harvest occurred in 1 year. The good news is that within three and a half years, the Charleston and South Carolina economies had returned to their long term trend lines. In fact Charleston, in 1989 was already experiencing economic growth, fueled by a rejuvenated port facility as well as by net inward migration of retirees from the northeast. Tourism was also a major contributor to their economy as was the major state medical complex. We expect that things may take a little longer in Louisiana. We believe that unlike the "Hugo" story, southern Louisiana was in the grips of a long term economic and population decline before the storms hit. Also, the mix of our economy, with its dependence on an antiquated and inconvenient port structure, as well as on a mature oil and gas extraction business, and older refining and commodity chemical production facilities, will take longer to bounce back. Indeed, some portions will probably never recover. We anticipate that this study will be of value in setting realistic goals for the state and the municipalities of southern Louisiana. That in turn will allow us to focus limited recovery funding on those sectors and businesses which have the best chance for sustainable recovery.
Mega-Site Searches
We are proposing a study to the Louisiana Department of Economic Development which will utilize existing data on 320 industrial sites within the state in order to identify new locations where businesses outside of the state can be situated so as to produce economies of scale for both the incumbent operator as well as the new arrival. This analysis will focus on locations with available land, utility and transportation infrastructure, and also with the potential for shared services such as warehousing, steam supply, accounting services, and safety services. Given the preponderance of refinery and petrochemical operations in the state, "through the fence" raw materials supply is also an option. Sites possessing these attributes will then be marketed to businesses being recruited to the area. A total of six reports will be prepared, over the course of one year. Two of these will be oriented towards establishing a baseline of viable locations while four studies will be focused on specific matches between candidates and existing industrial locations. Funding will be by the state and will $50,000.
Tax Modeling
A second funded study, also for LED, will develop a model which allows analysis of different locations in terms of the effects of local, state and federal taxes, including preferential federal tax treatment designed to help the Gulf Coast states in the recovery process. Major drivers of taxes, things like income, capital expenditures and depreciation, inventories, head count, and energy consumption will be plugged into the model, which will already include look up tables for local, state and federal taxes. Two or more locations will also be identified. The output of the model will be a ranking of the chosen locations along with a quantification of the relative benefits among the locations. The initial version of the model will concentrate on only Louisiana locations. A second phase of the project will extend the model's capabilities to cover neighboring states as well.
|
