Southwest Louisiana has long relied on its energy sector to power overall economic growth. This has benefited the region over the past decade, as oil prices soared and energy-related industries boomed. But what does that mean now that the cost of oil has plummeted?
Well, as anyone in Southwest Louisiana will tell you, oil and gas now account for only a part of the region’s economy, one that is increasingly becoming more nimble and diverse.
Thanks to its location and refining capacity, international conglomerates like Citgo have flocked to Southwest Louisiana over the past few decades. This has helped bolster the regional economy, leading to lower unemployment and increased output. According to the U.S. Bureau of Labor Statistics, the 5.4% unemployment rate in Lake Charles was significantly lower than the state’s 6.7% rate.
Southwest Louisiana’s oil and gas sector has faced some tough times over the past eight months, as oil prices fell from more than $100 a barrel to around $60. This drop has consequently spurred a number of companies to delay planned investments in the region. For instance, Sasol, a large energy firm, recently announced that it had shelved plans for a $14 billion project in Southwest Louisiana. The proposed investment was projected to create more than 1,200 new jobs, according to The New York Times.
Still, none of the major planned projects announced over the past few years have been canceled outright, and industry watchers point out that capital-intensive plans have also been delayed in the past when oil prices have fallen—only to be later resurrected when oil returns to equilibrium pricing. This is likely the case with Sasol, whose management has stressed that it has not abandoned plans for expanding in Louisiana.
What’s more, with some $62 billion in total planned investment, there is a lot of room for companies to move ahead with projects on an incremental basis, even in the short-term. For large oil companies such as Citgo—whose major refining facility in Lake Charles ranks as the fifth-largest in the U.S. and the sixteenth-largest in the world—fluctuations in oil prices are nothing new.
Deep water drilling also remains strong in Southwest Louisiana, according to The Advocate. That means that the high-paying jobs that deep water drillers create in the region will continue to exist over the coming years, a fact that has helped calm nerves in the state. That’s because deep water drilling requires a long-term investment and execution strategy, meaning that demand from the industry will remain high for the foreseeable future.
As the continued success of deep water drillers shows, falling oil prices haven’t spelled doom for all oil and gas businesses. Additionally, as long-term industry watchers are quick to point out, the price of oil has risen and fallen with relative regularity over the past half-century. There have been plenty of booms, and just as many busts, so oil companies—particularly large ones—are careful when planning strategic investments and don’t expect current market conditions to continue indefinitely.
Though somewhat counterintuitive, lower oil prices can actually trigger an uptick in investment. That’s presently the case, as a number of financial firms are actively looking to invest in oil and gas firms. According to The New York Times, current conditions have prompted big players like the Blackstone Group to raise billions of dollars, as they look to invest in such oil businesses. As these plans come to fruition, this could translate into big payoffs for Southwest Louisiana’s many oil and gas firms.
Though oil and gas are an important part of Southwest Louisiana’s economy, the region is working more and more to cultivate and promote its startup and innovation economies. One of the major ways it’s doing this is through the Southwest Louisiana Entrepreneurial and Economic Development Center (SEED), a public-private partnership that aims to fuel growth in the region over the coming decades.
The SEED business incubator is emblematic of the overall transformation currently underway in the region. Local entrepreneurs who are accepted into the program enjoy an array of services and advice from successful business executives. At SEED, participants are provided everything from business coaching and consulting to entrepreneurial training and industry-specific workshops.
This wave of renewed investment and focus on innovation has had ripple effects across the broader regional economy. Chennault International Airport has been among the beneficiaries of this boom, according to Randy Robb, its executive director. “We are building a new $3.5 million air cargo building on site, a $21 million large hangar, and a $2.9 million corporate hangar and GSE facility,” he said. “We are also spending $10 million of FAA money on a taxiway widening so that it can be used as an alternate runway.”
Though its oil and gas sector might be in the midst of a lull, Southwest Louisiana is benefiting from its increasingly diverse economy. With all kinds of businesses and industries expressing renewed interest in the region, Lake Charles and its surrounding communities are betting that their economic strategy will pay off, fueling job creation and driving economic growth for years to come.
This is the latest installment in our multi-part, year-long #SiliconCitiesUSA Series
Over the course of this year, we’ll explore how entrepreneurs and businesses are faring in non-major U.S. cities, beginning with Des Moines, Iowa. We’ll be reporting on the ground from each city, talking with elected officials and business leaders about how they’re harnessing their unique resources and local talent to fuel economic growth and better compete against more established urban centers like San Francisco and New York City.