Down But Not Out

Well before I first went down into a coal mine, I had this fascination with how coal has shaped lives and communities.

Having family roots in Appalachia, I have seen how coal transforms a place and people, both good and bad.

On the good side, it has historically provided for very good wages to people willing to do the work in typically economically depressed areas, while providing the United States with a cheap and reliable source of energy.

On the bad side, it is dangerous work that has cost and shortened lives. In some places, it has scarred the land and has generally created some environmental problems both on a local and national level and even a world-wide basis.

Because of a subscribed-to belief that climate change is happening and in part due to the burning of carbon fuels, coal-fired plants have faced increased regulation during the Obama administration. Not surprisingly, the coal industry sees this as an assault on its very existence.

 A “war on coal” is a common phrase used within the industry and coal communities in Appalachia by people who are utterly convinced that the current administration is dead set on making coal an obsolete fuel.

A Further Clampdown

President Obama only further confirmed that belief last week with proposed a new rule designed to further clampdown on carbon dioxide emissions from American power plants.

The Environmental Protection Agency proposal calls for reductions in carbon dioxide pollutants of 30 percent by 2030 from 2005 levels to stem climate change.

And while the newly proposed measure is certainly no shot in the arm for coal, neither is it a fatal blow. The truth that even before the new EPA proposal, coal-fired power plants in the U.S. have been under significant economic pressure because of low natural gas prices and slow electricity demand growth. Add to that further environmental regulation and you got yourself one very unhappy industry.

The U.S. had 1,308 coal power plants at the end of 2012. Their average age is 42 years, while 11 percent have been operating for more than 60 years. To ensure a reliable supply of electricity while meeting current environmental regulations, utilities have been retiring the older, inefficient plants increasing  the output of those that remain online.

If an average coal plant is currently operating at about 50 percent of capacity, once the older plants retire, the remaining units may increase capacity to about 55 percent, Brandon Blossman, an analyst at Houston-based Tudor Pickering Holt & Co., told Bloomberg.

“You’ll run the balance of the fleet harder,” he said.

Coal’s Share Will Slide

Under the new rules, the U.S. will still burn between 616 million and 636 million tons of coal for power in 2020, compared with 844 million tons if the restrictions did not into effect, a reduction of 25 to 27 percent, according to the EPA.

Coal’s share of the country’s power generation, now about 40 percent, is estimated to fall to about 33 percent in 2020 and 30 to 31 percent in 2030 under the proposed curbs, compared with an increase to 41 percent under existing rules, the EPA’s figures show.

The bottom line is that while demand for coal will be further stifled, which is bound to hurt certain companies and communities dearly, the latest EPA proposal is not the death knell of coal as portrayed by some industry advocates.

Not surprisingly, the National Mining Association said the EPA proposal will increase power prices and threaten energy grid reliability.

“These regulations, if finalized, would be a loss for American consumers, manufacturers and businesses nationwide, but especially for those in states that rely on low cost electricity from coal,” the Washington-based industry group said.

Higher Energy Costs?

Jay Timmons, president and CEO of the National Association of Manufacturers, said the EPA proposal could eliminate any U.S. competitive advantage by “removing reliable and abundant sources of energy from our nation’s energy mix.”

The American Chemistry Council repeated the competitiveness argument:  “As we begin our review of EPA’s proposal, we remain concerned that the regulations could lead to higher energy prices in certain parts of the country, a scenario that would make it more difficult for manufacturers in those states to compete abroad and grow and hire in the U.S.”

As one corporate site selection and economic development consulting, the idea that energy prices could rise in certain parts of the country in relation to others has me most concerned. Could that create even greater discrepancies in the cost of operations between states and regions? I don’t know the answer to that yet, but that will be something that I will be watching closely.

The EPA, by the way, predicts that overall energy costs will actually go down because the proposed regulatory changes, based on a pretty simple market theory that less demand for coal will mean for lower prices.

It is interesting to note that the ACA did throw a bone to the Obama administration by saying this: “We welcome the flexibility the Administration gave to states in designing compliance plans, and urge states to carefully assess how specific programs would affect energy costs, diversity and reliability.” 

A Question of Fairness

Now from my admittedly short-shrift analysis, it would appear that Texas, where I so happen to live, would have to share more of the brunt than other states if the proposed EPA rule goes into effect.

Texas alone will account for a quarter of the total U.S. reductions, with a cut of 39 percent required over the next 15 years if the proposed rule is adopted, whereas coal-dependent states like West Virginia and Kentucky face requirements of less than half that.

The EPA calculated the goals based a complex formula including existing emissions and availability of renewable power. States would be free to choose their own approaches as long as they achieve the goal.

While the proposed overall cut in Texas is considerable, a natural-gas production boom and large increases in wind energy (Texas is the nation’s top wind-power producer) has meant for a weaning off of coal. But that overall trend is happening in other states as well.

Energy Future Holdings Corp., the largest power generator in Texas, filed for bankruptcy on April 29 after a collapse in gas prices cut into revenue at the company’s coal-fired and nuclear power plants.

So there will certainly be winners and losers as we continue to transition away from coal, but the coal industry is not nor will be dead by any means. Coal remains the world’s second largest source of energy, and the U.S. is one of the top exporters of it in the world.

And somehow, someway, I believe that we will continue to use coal as a fuel source in the future in this country, because we will see an emergence of proven clean coal technologies. Too much is at stake not to go that route, even with our natural gas boom.

Controversy is not new to coal. King Edward I banned its use in London in 1306 because of heavy smoke from its fires. Centuries later coal fired the industrial revolution and shrouded London, a resident of that city in 1905 coined the word “smog.”

Personal Observations

Back in the 1980s, as a young reporter with The Birmingham News, I partnered with future Pulitzer-prize winner Rick Bragg in writing about the coal industry in Alabama. If I recall correctly, we wrote a series of stories that won some awards. I think a got plaque that I would subsequently use for a vegetable cutting board.

Far more important than any award was what we learned and reported, as we were able to go down into the mines and watch and talk to the miners at work. When we came back up to the surface via a long elevator ride, our faces were blackened just like the miners. But in the end, we were visitors into their world, albeit we told their stories.

And in the process, we learned how important the coal industry was to the miners and their families and to entire communities that were dependent upon it.

I came away with a lot of respect for coal miners. They are another breed entirely, where race and class plays no part. There’s brotherhood down in the mines and a certain closeness to mining communities.

So I cannot subscribe to the notion that coal is best left in the ground. I believe there is a future role for it and that emerging technologies to essentially clean it up will make it so. This is an area where we need a big R&D push. I hope it will happen and that the coal miners, those who remain, stay safe.

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.

 

 

 

An Inauspicious Start; The Revolution Continues

I do not believe in omens, although the first day of 2014 had me wondering.

A portion of my New Year’s Day was spent with the ominous duty of changing a flat tire. As I discovered this misfortune at home, I ignored my wife’s sensible counsel to call for roadside service and decided to change the tire myself.

Piece of cake. I’ve done this before, honey. No problema. But it was not the simple task that I first envisioned, as I had to first remove the spare tire, which was suspended by a cabled mechanism underneath the bed of my pickup truck.

(Yes, my preferred vehicle for the past 25 years has been a pickup truck, as I actually might haul things one or two days a year. And it compliments my cowboy boots.)

Confident in my abilities, I naturally refused to resort to the owner’s manual as that would be a sign of weakness. So I crawled under the truck where I soon became completely befuddled as to how I was to remove the spare, which was lodged up into the body and wasn’t going anywhere.

Trash Talk Galore

Back topside, I relented and turned to the owner’s manual. (Nobody was watching.) The booklet revealed that I had to assemble a provided multi-part special tool to insert into a hole that I didn’t even know existed beneath the bed of the truck. After a few fumbled attempts, I was finally able to connect the tool to some sight-unseen receiving mechanism on the truck’s underside and lower the cable-attached spare tire to the ground.

I was congratulating myself on this small victory until I discovered that I could not move the lug nuts on the flat with the puny factory tire wrench. They simply would not budge. I pushed and strained until I made myself faint.

“Sombitch,” I spat out. As I was alone, I could vent aloud and revert back to my latent redneck ways. A man and his truck are not to be trifled with, but these lug nuts were not cooperating and deserved my trailer-park, trash-talk wrath.

Having dog cussed them mightily, I retreated indoors to ponder my next move. “Having problems?” my wife asked knowingly and a bit amused.

“Just taking a break,” I said. “I’ll be finishing up soon.”

Google to the Rescue

I sat down at the computer. Maybe the omnipresent internet could provide answers. And sure enough, I found a YouTube video of a mechanic with 44-years experience suggesting that I use my foot and leg as a stronger leverage point in moving those you-know-what lug nuts.

“Now why didn’t I think of that,” I said aloud.

Armed with this seemingly good tip, I returned to do battle. And it worked. Foot power prevailed and I soon had all the lug nuts removed. The next step was jacking the truck up, which was a bit of a treacherous move with the puny factory hydraulic jack.

But we got ‘er done without any further incident. With the spare tire now installed, I had this sudden urge to drink a Pabst Blue Ribbon beer, attach a gun rack to the truck’s rear window, and go off-roading while yelling “yeeeehaaaa.” (Trust me, I don’t feel this way around my wife’s Lexus.)

Confronted with a challenge, I done whopped up on it, albeit I got a little dirty in the process. So take that, 2014.

An Improving Economy

It would appear that the economy is improving and we could have something on the order of  3 percent growth in 2014. That’s better than the anemic 2 percent growth we’ve been seeing in the past few years but still nothing that deserves a parade.

The auto industry has recovered and has posted some very nice gains in 2013 with sales of about 15.6 million cars and trucks, the strongest sales year since 2007.  Sales last year were 8 percent better than the 14.5 million vehicles sold in 2012.

The housing recovery hit high gear in 2013 with bigger than expected price gains and solid home sales. Unemployment, still a big problem, is easing somewhat with a rate now below 7 percent, a five-year low.

Were it not for a dysfunctional Washington, where compromise has become a dirty word and actual governance a thing of the past, we might actually see more gains.

And the Revolution Continues

But as I have written in past blogs in 2013, one of the biggest business stories in my lifetime is how the energy scene in the United States has so radically changed in a matter of just a few years. The fact is that prolific American shale drilling is changing the global petroleum map.

The experts have consistently underestimated the U.S. shale potential and they’re probably still underestimating the size of the global revolution that will come as a result. The combination of increased shale drilling, cheaper solar power and higher investments in energy efficiency has the potential to create a worldwide glut of oil and a sharp drop in prices.

“The US oil and natural gas revolution is gathering momentum, as companies invest more into domestic production and expand our ability to supply America’s energy needs,” API Statistics Director Hazem Arafa said. “Companies are opening more oil and gas wells, with a rising share of new investment devoted to exploration and production of oil, both onshore and offshore.”

A Competitive Advantage

All this could prove very beneficial for U.S. manufacturers, and give them a decided cost advantage in comparison to their counterparts in other parts of the world, where the cost of natural gas is triple what it is here. Don’t be surprised to see more big intensive energy-using projects – such as steel mills and chemical plants – happen in the U.S. because it.

If more equals better, then 2014 will continue this revolution with greater drilling efficiencies and more horizontal wells than ever, analysts say. Investment bank Barclays Capital projects that US upstream oil and gas companies will spend $156 billion in drilling and exploration in 2014, up 8 percent from $144 billion in 2013.

And the US Energy Information Administration’s Annual Energy Outlook for 2014 projected shale and unconventional oil production to peak in 2021 at 4.8 million b/d, or 51 percent of total US crude output, up from 2.3 million b/d, or 35 percent in 2012.

RBC Capital Markets projects a 2014 horizontal well count of 20,061 for the U.S. That number includes 12,399 wells in the Permian, Eagle Ford, Bakken and Marcellus, known as the Big Four. That compares to an estimated 18,580 wells in 2013, 10,793 of them in the Big Four.

What this means is that U.S. will stride past Saudi Arabia and Russia to become the world’s top oil producer by 2016, bringing our country closer to energy self-sufficiency and reducing the need for OPEC supply. But by 2020, the oilfields of Texas and North Dakota will be past their prime and the Middle East may regain its dominance.

With our strides in technology, manufacturing efficiencies, conservation and increased use of renewables, my gut tells me that OPEC will never have us over the barrel like they once did.  Let us hope.

But He’s a Good Yankee

The New Year has me busy. I’m headed to Georgia and will be there for five days this coming week, where I will be doing some on-the-ground investigative work as part of a SWOT analysis/action plan for a community there. I’m teaming up with my pal Jason Hamman, of the Ohio-based Hamman Consulting Group, on the project. It should be fun and hopefully rewarding for the ED group that we will be serving.

It did not take too much effort to convince our hosts that Jason is indeed a “good yankee,” who can add much value to the project. While we are there, I will introduce him to fried okra as the boy needs some proper learnin’.

A Parting Quote

Dow Chairman, President and CEO Andrew Liveris said something which I thought was spot on concerning the future of manufacturing, which I believe will always be inexorably linked to the future prosperity of our country.

“Today’s manufacturing is fast becoming unrecognizable to the generation that I represent. Today, making things cannot be separated from the work of inventing them and improving them and (being) creative with them and developing a next generation of them.”

And that’s why they pay him the big bucks.

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.

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

 

 

 

 

 

 

 

 

All’s Fair in Love and War: America’s Energy Advantage

Marcellus, Bakken, Eagle Ford, Permian, Niobrara and Haynesville.

Even to the most casual observer, some of these names do have a certain familiar ring about them. And they should, as they are among the dominant shale plays in the United States. And they have set the world on its head.

Developed technologies made it commercially viable to extract oil and gas from shale rock and largely because of it, the U.S. will become the world’s top energy producer by 2015, according to the International Energy Agency, supplanting both Russia and Saudi Arabia.

To which I will quote that respected industry observer, known for his piercing observations and in-depth analytical thought, Gomer Pyle: “Shazam!”

The IEA also predicts the U.S. will become self-sufficient in its energy needs by 2035. That is still a good ways off, but I never thought that was possible or likely despite of the many years the blowhard rhetoric emanating from Washington that we should seek energy independence. But it would appear that reality is truly within our grasp.

Again, this is all because of what we are sitting on and the fact that we have developed better technologies in this country to unlock the oil and gas from the shale rock.

Breaking Our Addiction

Now I would bet you that our predicted future of independence or even less dependence gives OPEC, the oil cartel founded in Baghdad and made up of Arab countries where the U.S. will never win a popularity contest, a degree of pause. I can only hope.

As someone who remembers the long lines at gas stations during the 1973 oil crisis, I shed no tears for OPEC, as they have shed none for us when they literally had us over a barrel. They still do to some degree, as we remain the world’s biggest oil-consuming nation and the largest importer of crude oil. But the point is that we are breaking our addiction to foreign oil because of what we are doing on the home front.

Indeed, the U.S. produced more crude oil in October than it imported for the first time since early 1995, as domestic shale oil output continued to surge and our consumption (much of it due to conservation and more energy efficient technologies employed) remained relatively flat.

Net crude oil imports in October fell to 7.57 million barrels a day, down from 7.92 million barrels in September and down 8 percent from the year before, according to the Energy Information Administration.

The Million Barrels Club

Meanwhile, the Bakken Shale, is about to reach a milestone: pumping a million barrels of crude a day, according to the U.S. Energy Information Administration.

The EIA says oil companies in the Bakken, which is located primarily in North Dakota, will reach the million-barrel milestone in December, up from an estimated 976,000 barrels in November. Drillers are spending about $16 billion in the Bakken this year, according to research firm Wood Mackenzie.

The Eagle Ford Shale in South Texas, hit the million-barrels-a-day mark back in May of this year, according to the EIA data. The Permian Basin — the massive field in Texas that’s been the foundation for U.S. oil production for decades – got there in May 2011.

The Biggest Turnaround Story

This mega-shift in energy production, spurred on by advances in hydraulic fracturing technologies, happened pretty quickly. Five years ago, U.S. oil production hit a 62-year low. Since then, domestic production has increased by more than 50 percent.

As a former business journalist, I view this as the biggest business turnaround story in my life. And it bodes quite well for the long-term growth prospects for the U.S.

Today, as a site selection/economic development consultant, I am constantly reading and talking to business people about new investments and resources dedicated to energy production and not just in the oil patch.

Clean Coal in Mississippi?

I was very much surprised to learn last week of a coal-fired power plant now under construction by the Southern Co. in Kemper County, Miss. Frankly, I wasn’t so sure that we would ever see any new coal-powered plants to be built again because of stringent EPA standards now in place. But this new plant being built may prove that there actually is such a thing as clean-coal technology.

The not-so-good news is the 582-megawatt plant 30 miles north of Meridian is considerably over budget, to the tune of about $1 billion according to some reports. I have read conflicting numbers on what the total cost might be. The Southern Co. says $4 billion, but Bloomberg Businessweek is pegging the number closer to $5 billion.

Whatever number is correct, the Department of Energy estimated back in April that a utility buying a plant with the new technology would pay double the price of a conventional plant. The price of new pioneering technology often does not come cheap.

When finished by the fourth quarter of 2014, the plant, to be operated by Southern Co. subsidiary Mississippi Power, will use a process known as coal gasification, where it burns gas extracted from pulverized coal. That in itself is not a new technology, but the Kemper plant — which literally sits atop of a lignite coal seam that will serve as its source of fuel for an estimated 40 years — will be the first to remove carbon dioxide. The gas will be sold to Texas-based Denbury Resources, which plans to inject it down into wellheads to unlock gas and oil from the shale rock.

Worse Storms to Come

It is not surprising that some environmentalists consider the carbon capture and sequestration (CCS) technology to be used at Kemper as not good enough. There are some critics who believe we should nevermore touch coal as a source of fuel because of greenhouse emissions.

Certainly, the environmentalists are right to be concerned as the body of scientific evidence does show that climate change is a real thing, that the planet and its oceans are indeed warming, at least partly due to greenhouse emissions created by nations worldwide.

Last week, Typhoon Haiyan in the Philippines, with sustained winds between 190 and 195 miles per hour, killed thousands.  Many scientists are looking at climate models that suggest that intensity limits will keep rising with the potential for more devastating storms due to global warming.

So what do we do? Well, the truth is that we cannot and will not abandon fossil fuels any time soon and nor should we. But if we can burn cleaner and more efficiently through applied technologies, and supplement our energy needs with renewables (solar and wind), then we stand a good chance of reducing emissions all the while reaching that energy independence that we seek. I submit that those are not conflicting goals.

Billion Dollar Projects on the Horizon

The various industries of energy will play a huge role in the future of local economies throughout this country. Economic development organizations should take a long and hard look at this as there will be likely job creation and in some places it will be considerable.

Billion-dollar energy projects are now being announced with some frequency in Texas and Louisiana in support of this burgeoning natural gas boom. Just one example is Houston-based Cheniere Energy. The company, which is now in the process of building a liquefied natural gas export facility in Louisiana, also hopes to build a similar facility in Corpus Christi, Texas, at a cost of about $12 billion.

Cheniere’s Sabine Pass facility in Louisiana was the first to receive approval from the U.S. Department of Energy to ship natural gas to countries with which the U.S. doesn’t have free trade agreements. The company is seeking permits to export gas from additional facilities planned at Sabine Pass, and from Corpus Christi.

There is debate as to whether it is a good idea for the U.S. to be exporting natural gas abroad, rather than hording and using it as a resource solely here at home. The chemicals and steel industries, which uses a tremendous amount of gas in the manufacturing process, questions whether the cost of natural gas might significantly rise if exports take place.

Not surprisingly, the oil and gas industry says that will not happen. Proponents of gas exports contend that increased gas production here in the states could fuel a response to rising international demand and keep worldwide prices relatively low. As a former skeptical newspaperman, I am not sure I buy that.

When You Got an Edge

However this plays out and wherever the truth lies, the good news is that U.S. manufacturers do now have a significant advantage in terms of energy costs in comparison to their counterparts in Europe and Asia.

And that in itself should drive at least some foreign direct investment to the U.S., especially so if a company intends to sell a majority of its goods or services in this market.

European companies, facing low demand for their products and rigid labor markets, are paying three times more natural gas and their electricity costs are double of that in the U.S. Prices for U.S. natural gas are currently around $3.70 per 1 million BTU, compared with just over $16 per in Europe and Asia.

In business as in life, when you got an edge, you take it. All is fair in love and war.

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.

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