Catch-22 pricing for gas a bad mix for petro-plants
Baton Rouge, La.
Along the Mississippi River here the petrochemical plants loom like Taj Mahals, their silvery domes and towers and catwalks protruding against a grassy green backdrop of flowing sugar cane.
This industry has been of prime importance to the Greater Baton Rouge economy for at least a quarter of a century. But Fred Loy, executive vice-president of the Louisiana Chemical Association, says that ''1983 will be a decisive year for us.''
The industries are in a severe recession because of soft demand for their products, especially fertilizer, but also because of high natural gas prices.
Mr. Loy calls prospects for the year ahead ''very, very bleak.'' The chemical arm of United States Steel Corporation has closed a plant in Baton Rouge, which has whittled away at the 16,000-plus local work force involved in the petrochemical industry. Stauffer Chemical has closed a plant until Jan. 1, at which time its management will decide whether it should be reopened.
''I know of no plant in Baton Rouge that's planning any hiring,'' Loy said. ''Two plants plan major layoffs if there's no dramatic improvement soon. And virtually all plants have offered 'golden handshakes' to get early retirements.''
He says he's talked with plant managers who have had 30-and 40-year careers in petrochemicals, ''and none of them have ever seen anything like this. ''The natural gas situation is a caution light over the whole state,'' adds Loren C. Scott, an economics professor at Louisiana State University here.
The petrochemical industry - including fertilizers, industrial chemicals, and synthetic rubber - settled in the state years ago because of access to cheap, plentiful supplies of natural gas. But ironically, soaring energy prices now threaten the long-entrenched industry. One reason, officials say, is the patchwork of federal regulations governing the pricing of intrastate and interstate natural gas. They argue that petrochemical producers outside the state can buy Louisiana gas for less than what local customers pay.
Mr. Loy cites a company whose Louisiana plant can't compete with its sister plant in Kansas - and both run on Louisiana gas. Interstate pipeline companies have access to cheaper ''old'' gas. They stream this together with high-priced deregulated ''new'' gas, and the mix enables them to offer customers outside Louisiana relatively inexpensive gas.
The ''old'' gas will remain cheaper indefinitely, until the wells run dry. Some observers feel these price cushions distort the market.
In bidding for decontrolled new gas, the intrastate pipelines are ''in the jaws of a dilemma,'' says Dr. Loren C. Scott of Louisiana State University. They can either bid high to secure supplies, at the risk of having to charge higher prices than the market will bear, or risk getting outbid by interstates and thus be unable to supply their customers.
Louisiana's situation is further complicated by the fact that so much of its gas goes out of state - some 70 percent. With the soft demand of the current recession, Louisiana is able to keep some of the supplies that would otherwise go to customers out of state. But as soon as the economy picks up, companies in Kansas and elewhere will be bidding for cheap old Louisiana gas again, leaving Louisiana users without.
The gas situation has got utilities and industries thinking in terms of coal, which could be transported by barge or in coal-slurry pipelines.
What Louisiana industry wants is deregulation, now. As it is, de facto total deregulation will occur only in 1995, according to Edward J. Steimel, president of the Louisiana Association of Business and Industry. That, he estimates, is when the old wells providing price ''cushions'' go dry.
And by then, Louisiana's industries should be feeling a longer-term problem: competition from new petrochemical plants being built in Saudi Arabia, Mexico, Canada, and other places.