David V. Brandon, Senior Vice President, Site Selection Group, LLC (Apr/May 10)
Representatives surveyed for Area Development's 24th Annual Corporate Survey last year ranked energy availability and costs as the fourth most influential location driver - up from the fifth spot in 2008 - with a combined score of 88.0. In the companion 6th Annual Consultants Survey, site selection consultants ranked the factor as the seventh most important - a drop of three places from 2008 - with a combined score of 89.7.
Corporate managers appeared only slightly more concerned with energy availability and costs in 2009 than they were in 2008. The 2009 score is only 0.1 percent and one position higher than in 2008, a year when energy costs spiked and supplies came into question. Consultants showed similar concerns, with the factor's score shifting only 1 percent, although that contributed to a drop of three positions.
Corporate respondents viewed labor costs, highway accessibility, and tax exemptions as more important than energy considerations. But site selection consultants ranked highway accessibility, labor costs, occupancy or construction costs, availability of skilled labor, state and local incentives, and availability of land above the availability and cost of energy in making location decisions.
In both instances, the combined scores showed little change over the years, while shifts in other factors contributed to the rankings of energy availability and costs in 2009. Notably, occupancy or construction costs dropped from the third to seventh spot, and corporate tax rate rose from the eighth to fifth spot in the Corporate Survey, while labor costs moved from the tenth to second spot with the ascent of real estate factors in the Consultants Survey.
Cost of Consumption
In 1999, the average spot market price of a barrel of crude was $16.56. By 2004, that price had more than doubled to $37.66 in 2004 dollars, and $43.17 adjusted for inflation. The price continued rise to an average of $91.48 in 2008 before a drop to $53.48 in 2009, and currently $69.85 at press time. Geopolitics and China's thirst for crude have magnified this market disruption.
Alcohol- and oil-based products from biomass will supplement fossil fuels and their derivatives such as diesel, aviation fuels, and gasoline over the coming decades. Such intermingling will likely raise prices while extending supplies. Furthermore, new fields may loosen conventional natural gas supplies and moderate price fluctuations while relieving pressures on heating oil supplies in the Northeast. Overall, energy availability and costs will remain key variables in a transition to a more varied generating mix.
The keen interest in "gasohol" and corn-derived ethanol is giving way to fuel alcohol production from other non-food crops. Algae offer great potential as sources of biodiesel and alcohol fuels, as well as foundation compounds upon which plastics rest. How much of a supply and cost impact this will have on energy prices, and when that impact becomes noticeable, remains to be seen.
Efforts to wring efficiencies from our energy systems through smart grid developments and by returning attention to historic energy sources combined with current technologies show promise. The prospect of synthetic fuels produced from coal through a process called "gasification" that can result in synthetic natural gas (SNG) and liquid fuel is regaining popularity. The United States' 800-year supply of coal, only a fraction of the world's coal supply, draws consistently greater attention as a legitimate part of the solution to our energy availability and cost challenges. Federal and state governments and private investments in these technologies suggest that, like nuclear generation, we recognize the potential for new solutions borne of once-discredited means.
While the 2009 Corporate Survey indicates that energy availability and costs were slightly more important than in 2008, it must be considered in context with the shocks delivered in 2008 that bore bitter fruit in 2009. Energy costs are fluctuating higher and will continue to do so.
Energy availability and costs will exert significant influence on virtually every business enterprise as these costs permeate all aspects of manufacturing and logistics. Those factors will continue to color the landscape and influence location investment decisions. But this time, we won't quickly forget the strategic lessons of crude oil dependence. Those communities that use their resources to collaborate with industry, higher education, and public policy initiatives will reap the benefits of private and institutional investments in energy savings and innovative product technologies.