Ranked #10: Energy Availability & Costs

The ranking of Energy availability and costs in Area Development's 2005 Corporate Survey should be viewed in the context of the survey's timing.

Ed McCallum, Senior Principal, McCallum Sweeney Consulting

Oct/Nov 06

(page 2 of 2)

The Future
The supply of crude oil and its derivatives such as diesel, jet fuel, and gasoline will not dwindle in the near future; however, they will become progressively more expensive over the next several decades. Also, thanks in part to industry and power generation switching to natural gas from 1970 to 1990, there will be a tightening of conventional natural gas in the near future.3 In spite of the proliferation of liquid natural gas (LNG) facilities, this will not have a major impact on the industry as a whole; instead, the selective sponsors/users of these facilities as a primary fuel source will be the real beneficiaries.

For instance, anyone who has performed a site search in the Midwest has seen a high level of interest in ethanol plants. Just how much of an impact this will have on energy prices remains to be seen. Of particular recent interest is the prospect of synthetic fuels produced from coal that can produce both natural gas (SNG - synthetic natural gas) and liquid fuel. Currently, the United States has an 800-year supply of coal at present consumption rates, and this represents only a small fraction of the world's coal supply. There is considerable interest by both the federal government and private sector to invest in this technology. These investments are not small, nor are the levels of employment and compensation associated with them. The recruitment of one of these technology sectors would be a huge economic development windfall for any community.

In sum, even though the 2005 Corporate Survey indicates energy costs were not as important as in the previous year, this should be considered in the context of when the survey was taken. Energy costs are rising and will continue to do so - and will become increasingly important to virtually every business enterprise, since the costs will flow through all aspects of manufacturing and logistics. Those communities that recognize the "opportunities" associated with helping industry manage these costs, while capitalizing on the product innovations that will be a natural consequence, will be the winners. The most pressing opportunity is through collaborations with industry, academic institutions, and public-policy initiatives to foster energy savings and promote product innovation. Investment in alternative fuels manufacturing is only a small percentage of what it will be in the next two decades.

1 Nymex Crude Future Price at 12:39 quoted from http:www.bloomberg.com/energy/
2 Deregulation Heats Up Power Bills, Thursday, Aug. 3 2006, U.S. News & World Report, 8-2-06
3 The Future of Energy in Manufacturing, Dr. John R. Wilson, Target Volume 21, Number 2.