Offshore Natural Gas Study Committee 10/28/08

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Offshore Natural Gas Study Committee10/28/08
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Agency Overview

• As the states lead economic development agent,
  Commerce works to recruit new businesses and help
  existing businesses grow
• Maintains four foreign offices to recruit foreign
  investment and help existing companies develop
  export markets
• Assists companies in locating buildings and sites
  in which to operate
• Offers grants for infrastructure improvement and
  community development
• Provides tools to enhance workforce skills
• Operates SC Public Railways and SC Division of
  Aeronautics

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Commerce and its Allies -Recruiting Jobs and
Investment at Record Levels

• Back to Back Record-breaking years in 2006 and
  2007
• 2007 Commerce and its allies recruited more than
  4 billion in capital investment and more than
  15,000 jobs to South Carolina
• 2008 Year-to-date Commerce is running well ahead
  of its 2007 recruiting pace

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Economic Development Interests Related to
Offshore Natural Gas Exploration

• Ensure competitive energy prices for existing
  businesses and companies seeking to relocate to
  SC
• Determine the potential for natural gas
  exploration to create jobs and capital investment
  in the state

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Industrial Electricity Prices

• Competitive Environment
• Variety of utility providers
• Low Costs
• 20 less than U.S. average price of electricity
  for industrial users

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Impact of Natural Gas Prices on Existing Industry
in SC

• Cement industry example approximately 1/3 of
  the production cost is energy (electricity and
  fuel)
• Inflationary pressure on energy is making
  domestic cement plants less competitive worldwide

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Comparison of Natural Gas Prices in SC to US

• Prices in SC exceed national averages

Table 1 Average natural gas prices (02 07)
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Capital Investment Created by Natural Gas
Exploration

• Two primary sources of direct capital investment
  pipeline and wellhead construction
• In 2007, no pipeline projects occurred in SC, and
  only two were located in the Southeast

Table 2 - Natural Gas Pipeline Construction
Projects Completed in 2007
Region Number of Projects Estimated Cost
Central 12 1,607 million
Midwest 2 27 million
Northeast 9 784 million
Southeast 2 304 million
Southwest 21 1,471 million
Western 3 39 million
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Jobs Created by Natural Gas Exploration

• Pipeline construction jobs are primarily
  temporary positions
• Total number of potential jobs is relatively low,
  while wages tend to be high
• Table 3 - Numbers of Employment and
  Establishments in NAICS 211, Oil and Gas
  Extraction, 2007

Alabama Louisiana Texas Mississippi United States
Employees 769 7,785 75,844 936 146,081
Establishments 36 375 3,894 80 8,551
Average Annual Pay 86,204 109,182 156,501 76,190 132,510
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Royalties

• Louisiana, Alabama, and other states have used
  royalty payments to fund cash incentive programs
  to lure other businesses
• It is not guaranteed that these royalties will
  significantly improve the state economy e.g.
  film incentives in SC
• COC Economist Frank Hefner said, its an open
  question whether lease royalties would really do
  much to spur further economic development in the
  state.

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Conclusions

• Cheap, reliable energy supply is a priority for
  both existing businesses and those we are
  recruiting to SC
• Offshore natural gas drilling will not likely
  have a significant, direct economic impact in
  terms of new jobs and capital investment in SC
• It is undetermined whether potential royalty
  payments would foster economic growth