Louisiana chief economic officer Stephen Moret. (Associated Press)
Last Modified: Saturday, September 21, 2013 11:30 PM
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.