Dean Barber

It’s a Scary World

In Corporate Site Selection and Economic Development on June 15, 2014 at 8:34 am

Most consultants have the imminent good sense not write a blog, whereas I am foolish enough to publish my thoughts on business trends and happenings on a regular basis.

It is a presumptuous act in many ways. Mark Twain must have had consultants  in mind when he wrote: “To succeed in life, you need two things: ignorance and confidence.”

To which, I must be blessed.

BBA Really is a Business

But I am incapable of turning out an industry white paper or academic treatise once a week. That’s not what this blog  is nor what my business is about.

And be assured that what I do – corporate site selection consulting and economic development consulting under the nameplate of Barber Business Advisors, LLC – is a business.

Apparently that is not fully grasped by some economic developers who would want me to spend multiple days in their communities without compensation. This I cannot do if I am going to keep the doors open.

As one who is self employed, time and money are inextricably linked. Which means, if I could, I would, but if I can’t, I shan’t.

I do like community “fam tours,” to which I am frequently invited. There’s nothing like seeing a place firsthand. But as Lefty Frizzell sang, “If you got the money, honey, I got the time.”

Oil, Blood and Religion

And as a former business journalist, I will confess that when writing this blog I am often reacting to the news of the day. But that is what keeps it topical and interesting, at least that is the hope

Last week, I wrote about coal and how a proposed increased clampdown by the EPA will likely mean less of it being burned by power plants in the United States, as more utilities continue to shift to natural gas. So that particular blog entry was based on breaking news, with the knowledge that energy costs is of great importance to businesses and consumers alike.

This week, I’m leveraging breaking news yet again, with the focus on oil, blood and religion and how it can come back to effect us.  Iraq is in the news as it appears to be a state of meltdown, largely because of a blood feud between Sunni and Shiite sects of Islam that dates back a thousand years.

Fear Premium

And because oil is a global commodity, what happens in one part of the world will affect oil prices everywhere. Crude prices have jumped this past week as a sharp “fear premium” set in quickly because of rapid and unexpected gains of the militants in Iraq.

West Texas Intermediate crude, the oil on which U.S. prices are based, rose 14 cents to $106.67 a barrel Friday. It was up 4.1 percent this week to the highest level since September.

Brent crude, which sets the price of most foreign oil, was up 48 cents to $113.50 a barrel. It rose 4.4 percent this week, the biggest rise in nearly a year. Rising oil prices haven’t yet translated to higher gasoline prices for U.S. drivers, but that could very well happen.

In addition to the unexpected territorial gains of Islamic extremists in Iraq, investors also are unnerved by the war in Syria, terrorism in Nigeria and fighting in Ukraine. Yep, it’s a scary world out there.

But There is Good News

Because of the recent U.S. shale and Canadian oil sand booms, surging North American oil production is dramatically reducing U.S. oil imports and has even led to a glut of light, sweet crude oil.

U.S. oil production recently hit a 25 year high and is expected to grow to 9.2 million barrels a day in 2015 and 9.6 million by 2016. That will make the U.S. the world’s largest oil producer, ahead of even Saudi Arabia and Russia. Meanwhile, net U.S. oil imports have fallen to a 28-year low in 2013.

Our country’s emergence as an oil and gas powerhouse has largely kept global oil prices relatively flat for the past few years despite the political upheavals happening around the world. But that doesn’t mean it will always hold true.

It’s Always Political

The truth is that our energy surplus does not mean that we can escape global risks associated with energy. Who controls the oil fields and pipelines in Iraq can very much affect the global price of oil and our energy costs here at home.

Wrote Bruce Jones with the Brookings Institute this past week:

“In the energy sector, it’s always political. Economies cannot function without energy, nor can they change their energy mix overnight—leaving countries heavily dependent on key trading relationships.

“Energy is also an essential ingredient of strategic power projection, and is treated by most governments not as a market good but as a strategic commodity. These global political considerations will not be removed from America’s energy interests even as the U.S. becomes more energy independent.”

Oil traders do not react well when there’s an impending civil war in one of the world’s biggest producers of crude.

The Great Unraveling

The Sunni insurgents of the Islamic State of Iraq and Syria (ISIS) overran the northern Iraqi city of Tikrit, which hosts a 300,000-barrel per day refinery, while Kurdish forces now control the oil-rich city of Kirkuk after Iraqi troops abandoned their post.

And the Kurds have high hopes of taking advantage of the turmoil by forming their own country. Indeed, what we might be seeing is the emergence of a new Middle East and the unraveling of a not-so-old Middle East, where borders were drawn up by the British and the French after World War I.

This is a place where there has never been (and I don’t think ever will be) a tradition of democracy, and where the definition of a stable government is one where there is a strongman putting a jackboot on somebody’s neck.

Sit Back and Watch

The best we can hope for is that groups who would wish to target the U.S. in terms of terroristic acts are kept in check and that oil production continues in an unabated fashion. Whether we can act militarily to control events is doubtful.

With an Al Qaeda offshoot on one side facing off against Shiite Iranian revolutionary guard on the other, it’s not easy to find someone to root for in this conflict. Neither group has warm and fuzzy feelings about the U.S.

So rather than intervening militarily, as a corrupt, secular regime in Baghdad would hope, maybe, just maybe, we just should sit back and watch our adversaries wage war and thereby weaken each other. That is a tact the Israelis have taken in the past.

You don’t hear our military clamoring for action, and that should tell you something.

A Safe Harbor

Energy costs are crucial to businesses planning for the future, and in deciding where businesses establish operations. Transportation costs over large distances are one contributing reason as to why some re-shoring has occurred.

The U.S. has grown more attractive as a destination for foreign investment. According to a survey by A.T. Kearney, a Chicago-based management-consulting firm, the U.S. ranked first in the firm’s annual survey of senior executives released earlier this month. China was second, followed by Canada, Britain and Brazil.

“There is this continued flight to safety, or perceived safety,” Paul Laudicina, a partner at Kearney, told The Wall Street Journal.

A maelstrom in the Middle East, where energy prices could further escalate, would only strengthen that incentive to bring operations closer to home. With Ukraine, Nigeria and now the Middle East showing signs of instability don’t be surprised if more companies, both foreign and domestic, see the U.S. as protected port in a storm.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use of this blog is strictly prohibited. Excerpts and links may be used, but only if expressed permission has been granted.

 

 

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  1. As always, excellent article. Working in the heart of Canada’s oil sands region (I’m the Planning Manager for the town of Fort McMurray, Alberta), it is impossible to not pay attention to what is going on in the oil producing regions of the world. I believe it is inevitable that alternate/renewable energy will continue to gain in popularity and usage, but that does not mean that the oil produced locally in North America is meaningless. The technology available for extraction and transport combined with the 24/7 publicity of the media and the internet do a solid job of ensuring that environmental impacts are minimized to the greatest extent possible, which supports continued activity such as the Keystone XL and even additional drilling off of California’s coast (I’m from California, so I don’t offer that lightly). The short version is that the collective global economy and society are geared to function on the combustion of fossil fuels, and despite the attractiveness of alternative/renewable energy, it is flatly impossible to effect a global changeover from fossil fuel usage. As such, given the uncertainty at best of the foreign oil producing regions, continuing to make the best usage of the resources at our disposal provides the twofold benefit of lessening our dependence on a volatile resource and buys us time to explore the best ways to increase the usage of renewable energy.

  2. The Blog on Linked In has a new look- very nice. I always read the e-mail version and seldom go to the LinkedIn version so it may not be brand new but just new to my eyes. I hope all is well in your world. I go to Council tonight for authorization to construct our spec building. I think it will go fine but one never knows.

    Take care,
    Charlie

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