Sunday Talk: Moret calls Southwest Louisiana’s business outlook amazingly positive

By By Bobby Dower / American Press

Louisiana’s economic development guru calls Southwest Louisiana’s business outlook ‘‘amazingly positive.’’

Stephen Moret, secretary for Louisiana Economic Development, talked with the American Press’ editorial board about the coming

surge of industrial expansion in the area.

American Press: What brings you to town?

Stephen Moret:

It’s a regular visit. It’s the first time I got a chance to see the

SEED Center. What a wonderful development. I could already

tell some of the synergy that is going to exist having several of

those organizations working in close proximity of each other.

It was a great opportunity visit that.

(McNeese President) Dr. (Philip) Williams has said he doesn’t know of other chambers (of commerce) that are actually located

on a university campus.

I think it’s relatively rare. But I

think it’s a good thing. We actually, when I use to run the Baton Rouge

Chamber of Commerce,

we even considered doing that at LSU. I ended up taking on this

new job with the state so I didn’t quite follow through with

that. But we looked at it. I think it’s a great partnership and

you can see that there’s a lot of value that will happen as

a result from having those folks in close proximity of each other.

The outlook for Southwest Louisiana is

amazingly positive. I was visiting with all the economic development

folks, with the

airport, with the ports, with the Small Business Development

Center, (Chamber/Southwest President) George Swift and his team,

the whole group this morning and it’s probably the most optimism

and good cheer I’ve ever had in all those meetings over here.

It’s obvious why. But as things go forward, the future keeps

looking better and better for this area.

I’m also really pleased that since the

last time I visited, Southwest Louisiana is now in competition for

another round of

major manufacturing projects, so I think over the next eight to 12

months, I expect that we are going to have some more good,

exciting things to talk about in this area.

I don’t think that we will be able to overtake Sasol as the high-water mark. But there are a number of other things that are

taking a serious look at this area.

One of the things that I come to

appreciate better is that folks around the world are really taking a

serious look at this

particular part of Louisiana today. Some of the top energy and

chemical companies based elsewhere outside the United States

are facing significant structural changes in their economics

because of what has happened with shale gas in the United States

and are looking to shift more of their capacity to the U.S. And

one of the places that they are very, very interested in is

Southwest Louisiana. Some I’m very excited about that.

We had good job growth over the last

year. We continue to see great growth in our GDP over the last five

years; it’s 50 percent

faster than the U.S. and 25 percent faster than the South. I’m

talking about Louisiana as a state. For Southwest Louisiana

was the second fastest growing part of the state over that

five-year period as fast as GDP growth. There’s a very good chance

it will be number one over the next five years for this particular

part of the state.

The population growth numbers look good. But mostly the outlook looks fantastic.

We’re spending an awful lot of time now

working with LCTCS (Louisiana Community and Technical College System),

with the Associated

Building Contractors, with the chamber here, with a whole range of

groups like Sowela and others looking at how to best address

the demand for skilled labor, principally for construction but

also for operations as well. That is going to be a huge focus

for us for the foreseeable future.

Even though we are not a workforce development agency per se, other than our FastStart Program, we think we have an important

role to play just to do the best we can to ensure that those things get addressed the best they can.

The other big thing that this region

continues to need to work on is site development. There has been a lot

of progress in

the area, but we still need more large industrial sites

identified, particularly in the parishes in Southwest Louisiana outside

Calcasieu Parish where there are some opportunities to attract

more big projects to the region and have a more broadly shared

prosperity across the region.

The next few months we are going to be implementing the import/export tax credit, which I know the Port of Lake Charles is

looking forward to utilizing there.

It’s just an exciting time, I just don’t know what else to say.

I’m delighted that there are so many

meaningful efforts in the community with the GO Group and related

efforts in housing.

I think that’s very, very important. The Southwest Louisiana and

the Bayou regions face the most acute supply/demand challenges

relative to labor and subsequently relative to housing as well.

One of the things that I’m delighted about is that this region

particularly seems to be giving a lot of thought to how to we

create as we grow, how do we grow in a way that we are going

to have a community that we’re pleased with the outcome of that

growth over the years to come. I think that’s a terrific development.

The Sasol project is really ramping up its level of activity. I keep bouncing into people all over Louisiana that are getting

contracts with them to do various things from zoning to — it’s amazing and we haven’t even begun the busy period yet. This

is the calm before the storm that we’re in — a good storm.

Cheniere is coming along very quickly

with their export terminal. I’m hearing good things about the

development of Sempra

and the Trunkline LNG projects as well. The Lake Charles Clean

Energy, the Leucadia project, is also looking very good. And,

of course, just recently the big AAR announcement at Chennault

which is just a fantastic outcome, the biggest independent

MRO in the country, very high-quality, well-capitalized company.

They have already hired back most of the Aeroframe employees

that were there before and obviously they plan to add hundreds of

additional jobs in the next few years.

Terrific outlook and we are going to

keep our foot on the gas pedal and try to keep it going. But I do think

we’re going to

have a little bit more of a balanced attack where we put as much

focus on workforce development as we do on business development.

The Sempra people are chomping at the bit and they are a little bit frustrated that the DOE and FERC approval is such a slow

process. As this proceeds can you see this becoming an issue that derails some of these LNG export projects?

Yes. Yes, nationally at least anyway.

There’s around 20 or so applications. I think that it’s relatively clear

that the federal

government is deliberately slow walking permit applications and I

think the reason why is that any administration in D.C.

is going to be hesitant to be perceived as having caused a major

spike in domestic natural gas prices. That’s the fear. I

don’t say that would happen, but that’s the fear. The chemical

industry, led by Dow Chemical, nationally is basically saying

be careful how much of this gas you export because you don’t want

to shoot the golden goose if you will.

I’m personally optimistic that the size

of economically attractive shale gas, the amount continues to grow.

We’ve got several

decades worth at least and I think ultimately we’re going to see a

bunch of those (LNG export facilities) get permitted. But

I think in the short term you are going to see them deliberately

have a very slow pace for approving those projects.

Obviously, Sempra is a very high

quality company. There’s no question that would be responsible,

effective operator. The only

way to explain why does it take long is I don’t want to say they

want it to take so long, but I think they are struggling

with that policy balance. And I think it’s a legitimate question,

not just nationally but for this region. But I think our

feeling is that they ought to approve several ultimately and

clearly the market can support that without a big spike, particularly

if they don’t all come on line at the same time.

So Sempra, I don’t know the exact

number, but I believe they will be roughly the fourth or fifth approved

nationally for a

non-FTA (Free Trade Agreement) permit, which is the main one. I’m

feeling increasingly optimistic about that project and its

likelihood to go forward and partly because of hearing separately

from some of the companies we are talking to about other

projects in Louisiana that are interested in partnering with

Sempra. So the outlook for that is really good and of course

Cheniere is already under way. It’s just going to be a while while

they work through these permit applications.

I personally envision a scenario that

as these projects come on line there’s enough demand that the

Haynesville Shale in

north Louisiana picks back up in activity and Louisiana in five or

six years from now is just going to be hitting on all cylinders.

It’s going to feel like it two years from now, but five or six

years from now, once the big natural gas new demands come on

line, it’s going to ramp back up the Haynesville Shale activity.

So we’ll have deepwater drilling in the Gulf is expected

to go up 50 to 100 percent over the next few years. Acadiana is

already busy in oilfield services. That’s going to get busier.

Southwest Louisiana, the Capitol region and the New Orleans region

are going to be very busy with these big manufacturing

projects, not to mention some software development projects as

well, not so much here, but in New Orleans and Baton Rouge.

Lafayette will have some of that.

So really all of south Louisiana is

really set to boom over the next few years and I think that’s an

appropriate description.

And then central and north Louisiana also looks very good, not

quite as robust because of the absolute scale of new jobs and

investments, but a lot of significant new growth drivers up there

like Benteler Steel in Shreveport and Sundrop Fuels in central

Louisiana and CenturyLink in northeast Louisiana, not to mention

agriculture is doing very well.

Sitting where I sit right now I couldn’t be more delighted about the economic outlook for the state and that’s certainly led

by Southwest Louisiana.

You mentioned workforce development. Could that become a hurdle that could sidetrack any of these projects just because there’s

not enough quality labor to go around?

Theoretically,

there is a risk of that, but I think we are going to be able to

overcome it. We have enough time when you look

at the pace of these projects. The peak of construction activity

has moved back a little bit. The bigger the project, the

longer it’s taking them to get it all together. Sasol is going to

be a little bit longer of a schedule than they originally

envisioned. But really, that’s probably a good thing because it’s

giving to give the region more time to prepare. Where before

we might have predicted a peak flow of construction activity

starting around ’15 or ’16, now it’s looking more like ’17 or

’18. It’s sort of a five-year ramp and then hopefully staying at

that elevated level for several years before it starts to

come down.

I think we’ll see roughly 10 to 12

years of very high level of industrial construction activity in

Louisiana. But fortunately

a ramp of roughly of five years from now to the peak where we’re

going to have some time to train more people, bring in more

people to get in those industrial crafts skills that they are

going to need to take those jobs.

We already seeing some good growth

there. Going back to your earlier question, the nature of the risk

relative to workforce,

for some of the big projects labor cost could be 30 to 40 percent

of the construction cost of their capital investment. So

it’s a big part of that total cost. If you saw a big spike in

labor cost, they had to bring a disproportionate number of travels

and pay per diems and so forth, the cost could be significant

enough to impact the basic ROI (return on investment) of those

projects. That’s why there’s a theoretical risk and that’s why

we’ve got to really hard not just to make sure that the new

projects are successful and stay on tract, but also to make sure

that we don’t inadvertently disrupt the operations of our

existing employers here because many of those same skill sets of

people that are working at the plant today are some of those

same skill sets that are needed to build these new facilities. So

for several reason it’s important to get the supply up as

much as we can.

And the good news for anyone in Louisiana that is willing to get training and pass a drug test, there’s going to be plenty

of jobs to go around. We’re going to be one of the great growth stories in the country.

Is the state starting to target armed forces installations because a couple of things, you are getting a disciplined work

force and a drug-free workforce, and it looks like there is going to be a downsizing of the armed forces over the next few

years? Is the state making a bigger recruiter effort at some of those bigger installations?

We’re taking a look at that. At the

moment we’re trying to fight to make the best case we can to maintain

the skill of those

operations. I think you are aware of the great state and local

partnership with Fort Polk with a pretty good outcome. In the

medium- to long-term, we think several of those installations have

good growth potential, but in the short term it’s a little

more uncertain because of the sequester.

We’re going to be monitoring that carefully and if it starts to look like a significant reduction, that’s definitely one of

the targets we would go after.

One of the things that you will see

both here and in other parts of the state is kind of a PR effort to get

the awareness

levels up of where the particular areas of opportunity are. We’re

going to have tremendous demand for all the major industrial

craft skills labor types, for engineers of almost every type, just

thousands we’ll need and you are seeing spikes already

at LSU and I’m sure over here as well. Computer science graduates

as well because we’ve got really nice growth in the software

development area. That’s another area where just about any

graduate in the next few years in computer science with good grades

who can work well with people is going to have job opportunities

in Louisiana. That’s kind of a new area of growth for our

state. So those are the biggest areas — computer science,

engineering and the industrial craft segments and, of course, plant

operators.

And, of course, with all the growth,

you’ll have big growth in all the indirect things as well — health care

will be a big

growth driver, professional services, accounting, finance,

marketing, human resources, even lawyers, they may need a few more

of those.

One

of the things that the folks at AAR told us was that they came here and

are assuming some of the work that Aeroframe had.

They said they really didn’t have a whole bunch of customers lined

up, but they felt like the opportunity to be here and at

Chennault was one that they couldn’t pass up. What does that say

about Chennault and the facilities that they offer?

I think it says a lot about Chennault. I

think it says a lot about the workforce here. It says a lot about

Sowela. I also

think and maybe I’m biased, but part of the appeal was that they

wanted to do more wide-body work and they don’t really have

capacity for that. Hangar H, the new hangar, is particularly

well-positioned to do that. So there was the vision the airport

leadership had initially and came to us I think reliatively early

in our term and I can’t remember when we made the announcement,

maybe 18 months ago or so. They sort of talked about the

opportunity and we felt like it made a lot of since.

I don’t know if you remember when we first came and visited with the American Press

back in 2008, we talked about our eight strategies and one of those was

investing in targeted regional economic assets and

you may recall that we said for this region Chennault and

probably Fort Polk were the two that really met that test. So at

Chennault we funded several smaller projects, but the big one was

Hangar H project where the state provided 14 million (dollars)

and local government and Chennault all together provided the 6

million (dollars) or so. And then also Fort Polk where we’ve

committed about 25 million dollars to develop the off campus

housing and retail to not only make the base more attractive,

but to get more of the soldiers and their families to live and

work off base. So those kind of investments around the state

have really paid off great dividends.

In northwest Louisiana, Barksdale Air Force Base is an example of that and that helped attract U.S. Air Force Global Strike

Command.

A rough target by the way was to look

at things that had the potential to create at least a thousand new jobs.

Here with Chennault

has taken off a big chunk of that investment (and) we think that

there will be a similar level of impact at the Fort Polk

operation with that investment. We’ve made other investments like

that in other regions around the state. I’m really proud

of that partnership.

When I became secretary, in fact the

very first time I visited Lake Charles as secretary, or

secretary-designate, I came to

an event and I don’t remember the event, but a couple of

legislators and a few of the Chennault people pulled me aside at

the end and they said, ‘‘Look, we’ve got to tell you about this

great asset we have.’’ And I’m so glad they did because, wow,

it is a tremendous asset and I do think that while Northrop

Grumman and AAR together will probably maximize over time the

aircraft MRO opportunity, there is still land out there and there

are still some interesting possibilities that we are going

to be able to pursue there.

And the fact that they are there, the companies of that quality, just makes it that much more attractive.

You

were in Lafayette the other day and one of the things that you were

talking about was they are behind in terms of information

on potential sites. The Chamber (Southwest) has done a good job of

that here and I know that’s one of the things that impressed

Sasol when they first made some overtures, there was such a quick

response here.

Well, and the other thing that was

extremely important was that Calcasieu, I think the parish has excellent

GIS data. That

made a big difference. I don’t know if you recall, they selected

this region partly because of the quality of the workforce

and other factors, but also because of the speed with which they

were able to identify all the parcels that could be pulled

together to make a site that would work well. The fact that we had

that data available and the partnership of the Chamber

made a big difference.

My message in Acadiana was about that

fact. If you look across the state of Louisiana we have 64 parishes,

each with a wide

variety of economic development efforts at the local level. Some

of them are really outstanding, well-funded and professionally

staffed and some of them don’t have a single full-time person.

There’s a huge range.

In Acadiana, they have the Lafayette

Economic Development Authority, LEDA, which has been a very high

performing, professional,

well-funded organization for many years, but really just focused

only on Lafayette Parish. You’ve got several of these outlying

parishes like Evangeline and Iberia and Acadia that really have a

lot more land.

So the point I was emphasizing to them

is they have one of the very best parish-level economic development

entities, but at

a regional level they have one of the least sort of funded. It’s

not that it’s poorly performing, it’s just that it’s really,

really small. They don’t have much capacity as compared to like a

Southwest Louisiana, like George’s (Swift) group, or BRAC

or GNO Inc. where they have raised private dollars and they have a

significant effort. So I was encouraging them to think

of and in some ways to model after what Southwest Louisiana has

done with the last five years, what the Capital region has

done, what northwest Louisiana has done and actually say, ‘‘Hey,

let’s really have a regional focus.’’ And that will be to

the benefit of both. Just like in Acadiana, to the extent that

they develop major sites for manufacturing facilities in the

outlying parishes, that will also benefit Lafayette Parish and the

same kind of idea here. Especially now, both nationally and

internationally, Southwest Louisiana and the Lake Charles area is

developing a more prominent

identity. Those outlying communities benefit from the association

with Lake Charles. You’ll never get to the point nationally

or globally where an Allen Parish or something like that would

have a brand that would be recognized, but you know what, this

region actually does now, particularly for people in the

industries that are prominent here. So that’s something that can

benefit the whole area.

In the same way where Cheniere

developing in Cameron Parish has benefitted many firms and businesses

here in Calcasieu, engineering

firms, law firms, I’m sure there are a variety of people involved

in helping build that and operate that.

Do you think we are ready as a state for all of this or are prepared enough?

We’re not ready. (Laughter). I wouldn’t

say we’re ready yet but I think we will be. I think particularly in

this region one

of the things that impresses me more than any other part of

Louisiana is the efforts to prepare. On workforce and the efforts

to prepare on housing. And that’s not to say it’s perfect. There

is so much left to do. It’s really just getting started.

But there’s a more deliberate coordinated effort for here than I

have seen in other places around the state. There are other

places that are doing a good job in economic development. I don’t

know any place in Louisiana that I’m aware of that has putting

as much thought in how do we prepare for housing needs, how do we

think about the communities or development plans.

And similarly I think it’s fair to say

that Southwest Louisiana has the most effort going into trying to

prepare for workforce

issues. For example, R.B. Smith’s position at the Chamber I think

is relatively unique in Louisiana. Most even big metro chambers,

I think most of them don’t have a full-time workforce development

person. I think that is so helpful to have that.

And then this GO Group where you have people from government and the private sector meeting together, it’s just great.

The big thing is are we ready yet? No.

But the efforts are in the right direction and the important thing is to

keep that

going because it’s not going to be too far in the future that all

of a sudden we’re going to be overwhelmed with everything

that is happening.

This is truly a very slow period of

time in comparison to what is coming in the not-too-distant future.

Sasol plans to break

ground on Phase I in the second half of 2014. You’ve got Lake

Charles Clean Energies planning to break ground next year. The

Sempra project once they get permitted, I wouldn’t be surprised if

that’s some time next year.

There’s a bunch of these bigger

projects starting in ’14 and no later than ’15 are going to be under

way, plus one of the

big segments we are going after right now are more ethane cracker

projects. I’ve been talking to a bunch of companies around

the world. There’s a belief that there can be a demand for

depending on who you talk to between five and 10 new world-scale

crackers in the U.S. You’ve got one that Dow is doing in Texas,

you’ve got the Sasol one right here, there’s one more in Texas

I forget about. But there’s still four to seven that are up for

grabs, if you will. These are probably average two billion

(dollar) capital investment and five to six hundred direct jobs

and average salary of eighty to ninety thousand. It’s really,

really nice projects. We are, statewide, competing for about five

of those. Several of those are considering this part of

the state, as well.

Southwest Louisiana has had a big

advantage in ethane crackers over the capital region and the New Orleans

region because

they did not have until recently as much ethane capacity. You’ve

got pretty good ethane capacity here whereas the Baton Rouge

area and the New Orleans region are kind of tapped out and they

don’t have the huge volumes that are required for that. But

there are a couple, at least one pipeline project under way that’s

going to address that.

But, logistically, it’s still a little bit less expensive to get ethane here in Southwest Louisiana. That’s one of the big

types of projects we are competing for.

Sasol is planning that man camp for its workers. Are any sites around the area?

Are they doing it themselves or is there a third party involved? I know I heard about a third party.

Yes, on port property.

There’s definitely a case to look at the housing as separating temporary from permanent. Sasol, the numbers are still moving

around for the construction, but let’s say peak construction now is say 6,000 or 7,000 people, but then that will go away.

But then permanent is including direct and indirect is about 7,000 permanent. So that it’s a little unique.

I think most of the projects will have a bigger construction employment versus the permanent operations. I definitely think

an idea of having some temporary housing arrangement as well as an increase in permanent housing is the right way to think

about it because on the back end, whatever this ultimately becomes, some of the jobs will go away like with the industrial

construction activity.

I think the outlook for those

industries for the foreseeable future, but in terms of the this kind of

structural rebalancing

— use the ethylene cracker as an example — with the price of

natural gas where it’s expected to be, there’s not an infinite

number that need to be developed. It’s somewhere between seven and

10 and once they get built in the United States then the

most likely scenario is that the industry sectors will be back to

about 3 percent per year growth. So it will be a little

more stable, so that means you end up with a lot more permanent

jobs and then back to a nice normal growth rate maybe 12 years

from now.

But between here and there it’s going to be really, really busy and you’ll end up with a — and it’s still very hard to see

— but I would guess at least 12,000 net new permanent jobs as a result of the stuff that we are talking about right now in

Southwest Louisiana. But construction will be substantially bigger than that and then we will come back down.

So kind of thinking about that housing

mix and how you do permanent versus temporary will be important because

you don’t want

to overbuild. Right now I don’t think there’s enough plans to meet

the permanent demand, but as it gets built up it will be

important to keep track on how much of this is permanent versus

sort of medium-term employment.

Sometimes you want to pinch yourself to think about the capital investment that is coming to this area.

Having a sense of urgency about all of this is very important. We’ve got a little time, but boy is it going to ramp up in

a hurry. ...

You know a big automotive plant is about two billion dollars of capital investment. That’s a big one. You guys are going to

have 40 (billion) plus. That kind of puts it in perspective. ...

Chemical plants are about the biggest multiplier for jobs. You could have a seven or eight multiplier. A single ethane cracker

with maybe 500 direct jobs could be a total impact of 3,500 jobs or so. That’s a lot. That’s one and you are going to end

up with a good number of very large, high-quality type projects.

If the GO Group and the housing related work can proceed through aspirations, you are talking about creating a different future,

a better future for this region.

One of my hopes as secretary for our

state and also for Southwest Louisiana is that once we get into the boom

that you remember

that great bumper sticker from the ’80s: Give Us One More and We

Won’t Mess It Up This Time. One of my hopes is that we can

use that time when things are really good well and the revenue

numbers are up to really aggressively work on more opportunities

to diversify the economy. That’s one of the reasons something like

AAR is so exciting to us because MROs is not your core

business. It’s kind of another way to bolster things in a little

bit differently.

I think GTL (gas to liquids) does that

to an extent. It’s not quite in line with the other businesses that are

here. Software

development in other parts of the state is going to do that. I

think other types of manufacturing outside the energy and chemical

manufacturing can do that. So that’s one of the things I’m

thinking about. As much as we want as get as many of this sort

of energy and petro-chem stuff that’s coming into the U.S., we

also want to get and cultivate other growth opportunities so

that we get a little more diversify or diversification in our

economic base over time.

We’re going to be positioned to do that. Our business reputation is so much better than it used to be. Our workforce programs

are better. Our incentives are better.

We’re going to have tax revenues as

these things start to come on line and we can invest in roads and higher

education and

all these things and say hey, if we want to cultivate a few new

growth engines for the economy, we’re going to have the money

to do that in a way that you don’t have during a national economic

downturn.

It’s going to be fun to see Louisiana

consistently among the faster growing states in the U.S. We’ve been able

to outperform

during a downturn and that’s good, but it’s going to be a

completely different feeling to be outperforming with big numbers

because we’re talking about statewide, I wouldn’t give you a point

forecast for any particular year, but I would certainly

think on average the next three years out to seven years out I’m

thinking we will be averaging well into the 30-plus thousand

net new jobs per year. And that’s really nice growth. That’s going

to be a really good feeling.

The last few years, we went in the

recession later than other states, we have smaller job losses, we came

out early, we are

one of early 14 states in positive territory for jobs from January

’08, but it’s less than normal growth because we are comparing

with a difficult national situation.

What we feel like going forward is

pretty robust growth. Think about small businesses in Southwest

Louisiana. We talk about

the statistic from LSU before that in Louisiana the vast majority

of businesses in Louisiana get the vast majority of their

revenue right in their local market. It may be a mom-and-pop

retailer or restaurant or hotel or what have you. So when the

market itself is experiencing tremendous growth, they’re going to

have more revenue, they’re going to be able to hire more

people, they’re going to be taking more money on, people are going

to be buying more cars, upgrading houses, saving for college.

Growth is kind of the magic elixir that’s out there. It’s going to be able to put us in a position where we can start our

own success spiral, not unlike North Carolina did in the ’50s and ’60s and Georgia and even Texas.

That’s what I kind of see ahead, and if we make the right choices and if we don’t get complacent like we did maybe in the

’70s a little bit, then maybe we can extend it and have today be a inflexion point where you sort of look forward from now

and Louisiana is just a consistent growth state in the South.