As manufacturers, economic developers, and site selection consultants have come to know, the latter often serving as a go-between to the former, energy costs can be a make or break factor in deciding where a future plant may be located. And depending on the industry sector, energy costs can represent a huge portion of total overall costs.
And for the nation as a whole, the cost and availability of energy can have huge ramifications for our economy. When gas prices at the pump have us wincing, it usually means that we have less disposable income to spend on other stuff. And Lord knows we need our stuff.
High gasoline prices can actually have a chilling effect on the economy as it directly relates to consumer activity in how we budget and thereby act. (You can bet just about every president in the past 30 years is well aware of this.)
In the last few weeks, prices at the pumps have been dropping somewhat as the energy analysts tell us that oil supplies have built up worldwide. Still, I tend to think that high energy prices will be a fact of life for us a very long time.
But the United States is probably in much better shape than most industrialized nations around the world. It would appear that new oil and gas field discoveries are taking place with some frequency and that new technologies now permit us to get to it.
Depending who you read and what you believe, which is often the hard part, we have anywhere from 100 to 300 years of oil and gas reserves and probably even more with coal. But coal is being viewed is the red-haired stepchild, partly because of the environmental costs associated with it and the booming shale-gas production.
Electric utility companies now favor powering their generating plants with natural gas, which is trading at its cheapest in a decade as hydraulic fracturing opens up previously inaccessible reserves. Consumption of coal to generate electricity will fall 5 percent in 2012 to less than 900 million tons, a 16-year low, according to the U.S. Energy Information Administration.
A new analysis from Bloomberg posits that era of U.S. coal-fired electric power generation will effectively end as new federal regulations from the Environmental Protection Agency limiting carbon dioxide emissions from fossil plants take effect.
The new U.S. EPA rules, rolled out last month and open for public comment until June 12, will effectively ban the construction of new coal-fired power plants because the CO2 emission rates required of fossil plants are so strenuous that no conventional coal plant could meet them, according to Rob Barnett, author of the Bloomberg report.
And while EPA designed the rules to accommodate fossil fuel plants equipped with carbon capture and storage (CCS) technology, the Barnett report said such plants probably will not be built unless Congress provides incentives to defray their higher construction and operation costs.
Meanwhile, existing coal-fired power plants, many of which date to the 1970s, will continue to face pressure to close as other environmental regulations target coal pollutants like nitrogen oxides, mercury and particulate matter.
Fewer coal-powered generating plants and less demand will mean a cut in production of 21 million tons of coal for mining companies in Appalachia, an area covering 12 eastern states and home to 85 percent of U.S. coal mines, according to Doyle Trading Consultants in New York.
There are contrarian views. One analyst predicts that natural gas prices will rise to the point that coal companies will once again find a price advantage.
“Since natural gas competes with coal in its main usage – power generation (93 percent of the coal produced in the U.S. goes toward this usage), natural gas rising will first eliminate the present dispatch switching from coal to natural gas, increasing coal volumes. Then, as natural gas continues higher, coal prices will follow to some extent, increasing the coal mining industry’s profits,” wrote analyst Paulo Santos.
Is he right? He might be. I’m no energy analyst even if I am playing one this week. But I have to believe that if EPA’s new rules truly are the gamechanger, then coal, while it may be part of the our energy mix for some time to come, is on a long downward slope.
Energy policy has been and will remain a political football. Even though both Democrats and Republicans are now singing the praises of all-of-the-above energy strategy, which includes nuclear, both sides remain suspicious of one another.
Republicans do not believe that Democrats really want to go after the nation’s fossil-fuel resources in a big-time way, whereas Democrats distrust Republicans’ commitment to renewables and energy efficiency.
With natural gas prices at historically low prices, which is a tremendous boon to manufacturing, I have to also wonder about the future of wind and solar energy, at least in the short term. Please understand that I am not opposed to these renewable energy sources. Rather, for them to have a viable future, they must make economic sense. In that regard, I also question if an all-of-the above energy strategy is really taking root. Natural gas may be trumping all other options.
“It is true that natural gas may push solar and wind power out of the picture, but if that happens, it is because natural gas is simply such a great, economic fuel source,” wrote Frank Fisher, a Houston-based attorney who consults for the oil and gas industry. “There is certainly nothing to complain about when it comes to good, financially viable fuel sources, particularly when America has that fuel in such abundance.”
I think Mr. Fisher probably has it right, the abundance and the lower cost of natural gas may thwart efforts develop wind and solar projects, at least under current market conditions. But as you know, things can change. Still, I have to think that if you use what you most have in a responsible and judicious manner (Many energy experts believe the greatest gains in the U.S. toward reducing its reliance on foreign oil will result from energy efficiency), then by all means leverage your strengths.
And the more I read about our oil and gas reserves in this country, particularly on the gas side, the more I think we have strengths to leverage. Indeed, it would appear that we are one very rich energy-resourced country. If we can only all agree on how to access, use and conserve it in responsible ways, well, we’ll be doing just fine.
A Memorable Phone Call
Life cannot be all serious and neither can this blog. I have been railing lately on some rather weighty business subjects and I will do so again. But sometimes you are thrown a curve ball that can either make you mad or make you laugh. Generally, I would recommend that latter as it can add years on your life.
I got a good belly chuckle earlier in the week when I received a telephone call at 7 one morning. On the end of the phone was an Asian woman with such a heavy accent that I had to ask her in a gentle manner to repeat herself a second time so that I could understand what she was saying.
It turns out that she thought, because of the name of my company – Barber Business Advisors – that I could assist her in starting, I kid you not, a barbershop.
It took me a few moments to comprehend all this. At first, I was thinking, was hoping in fact, that she represented an expanding Asian company that wanted my site selection consulting services for a new plant project in North America. But that was not the case.
After it dawned on me what she was asking, I told her that I knew nothing about the barbershop business, although it was soon time for me to visit one. I explained to her that my last name was Barber and that I helped companies, principally but not limited to manufacturers; find optimal locations for future operations.
She understood this and apologized. My response, despite the fact that I was still on my first cup of coffee, was “No problem and best of luck to you.” (I should have directed her to her local economic development organization for startup services, but again, I was still on my first cup.)
Afterward (after my third cup), I really got a big kick out of this. Who knows, maybe she inadvertently showed me a way to diversify and broaden my consulting business. She also sort of kind of cut me down to size, and I have to thank her for that. Can’t put on too many airs.
Save Our Ship
As many of you know, I have on occasion written on a freelance basis for Site Selection magazine about a number of projects, none of which I have been intimately involved in my role as a consultant. And I have a good relationship with the editors. (Although one might question whether a good relationship with an editor is even possible, and I say that as a former editor. Typically, their dogs like them.)
Without spilling the beans, very soon you will be able to read about a rather unique project to site and transform the former ocean liner SS United States into a mixed-use project somewhere along the eastern seaboard of the United States. Wherever this 1,000-foot vessel goes, it could become a major tourist attraction, although the thought is that it can become so much more than that.
I’m working the story right now, and it’s going to be a good one. So there is your teaser. If you want to learn more, and you should because I am telling you so, then be watching the online magazine for Site Selection magazine. It is THE magazine of corporate real estate strategy and area economic development. http://www.siteselection.com/
And just remember that I am THE blogger who holds himself up as a site selection consultant, an energy analyst (at least this week) and freelance magazine writer. But I do not do hair.
Dean Barber is the principal/owner of Barber Business Advisors, LLC., a site selection and economic development consulting firm based in Plano, Texas. He can be reached at 972-767-9518 or at email@example.com Please visit our website at www.barberadvisors.com