SHAPING STRATEGY Energy and the Election Cycle Redmond Clark, CBL Industrial Services, Cary, Illinois A
s we approach the next presidential and congressional elections, energy prices and
energy policy have vaulted back onto center stage. In past columns, I have addressed the impact of new technol- ogy, increasing global energy demand and national fiscal/monetary/environ- mental policies on the costs of energy resources. My central message in these columns has focused on energy sup- ply/price risk and long-term strategic planning for the energy-intensive metalcasting industry. Market develop- ments over the last few years suggest we should take another look at energy markets and government policy. Over the past five years, several
breathtaking developments in the do- mestic energy industry have occurred. In 2008, natural gas was above $10 per 1,000 cu. ft. Today, that number is below $2, as fracking and horizontal drilling have changed the energy landscape. Within two years, domestic gas produc- tion has doubled, according to the U.S. Energy Information Administration. Prices have dropped because there is a gas glut and the U.S. has little infra- structure in place to consume or export excess production. Commodity gas prices in the European Union are more than double those in the U.S. Because of the recent mild winter, stored gas supplies might reach capacity in many areas this summer, forcing reduced gas production and/or well closures. Cheap gas and new technology
deployment has had some interesting impacts on domestic oil markets. Di- rectional drilling and fracking also have allowed for a sharp surge in domestic oil production and proven domestic oil reserves. Even so, global oil demand is creeping steadily higher, the dollar is weakening and global oil prices are continuing on a steady rise in response. At the time this column was prepared, West Texas Crude was more than $100 per barrel, while Brent Sea crude was more than $120 per barrel. As a counterpoint, the Canadian tar sands are now a proven resource, and U.S. oil shale deposits in Colorado,
Wyoming and Utah may have more than 1 trillion barrels of oil in place. Te economic ramifications of such
resource development plans could ex- tend far beyond energy self-sufficiency. Our energy resources represent an accumulation of wealth that could, over time, double the accumulated wealth in the U.S., create jobs and increase rev- enues to state and federal governments. For a metalcasting facility manager
political winds shift the wrong way.
inefficient energy consumers place themselves at the greatest risk when
Larger and
and planner, those sound like wonder- ful options. Unfortunately, the road ahead is still filled with uncertainty. Te U.S. federal government is not moving to aggressively exploit carbon fuel resources. Its actions (listed below) are slowing or blocking domestic car- bon fuel development in part because of the risks associated with human-
influenced climate change: • Te U.S. Environmental Protection Agency (EPA) has expressed deep reservations about fracking and have sued or cited gas developers in Texas, Pennsylvania and Wyoming. In every test case brought to court or in en- forcement negotiations so far, EPA has either dropped charges or gone back to the drawing board, primarily due to a lack of evidence of harm.
• Te federal government has proposed significant changes in the federal lands leasing process for oil shale properties in Colorado, Utah and Wyoming. Tose changes will reduce available leases and the size of leased parcels. As a result, new oil shale development proposals have declined by 90%.
• EPA recently promulgated new regulations governing coal-fired power plant construction that likely will limit or stop the construction of such plants in the U.S., and the agency is expected to promulgate greenhouse gas regula- tions for existing coal-fired power plants that may accelerate closure of the facilities.
• Offshore oil leasing and permitting is still mired in delays and regulations. In short, the administration assault
on carbon fuels continues. I am not offering a value judgment on those actions, but they offer multiple lessons
for foundry managers and planners: • Te evolution of energy markets is oc- curring with unprecedented rapidity, influenced by technology develop- ment, economics and regulation.
• Most energy resource and energy sup- ply industries operate under varying degrees of governmental control.
• Governmental involvement means short-term politics will always influ- ence energy policy, which can have an impact on energy resources’ supply and price, nationally and internationally.
• Larger energy consumers—and inef- ficient energy consumers in particu- lar—place themselves at greatest risk when political winds shift the wrong way on their energy supplies of choice. Here is an example to think about.
Steady closure of coal-fired power plants and no new nuclear facility con- struction means a significant part of your medium-term primary electrical power needs will eventually be met by gas-fired generators. When adequate natural gas export facilities are built and domestic supply shifts, excess gas will disappear and your gas/electric costs will rise significantly. Conserve, be efficient and build
flexibility into your energy plans. If you have cost-effective options for reducing energy consumption at your metalcasting facility, you probably want to bet those avoided costs are go- ing to increase over time. Plan ahead to remain competitive. Redmond Clark is president and CEO of CBL Industrial Services, Cary, Ill.
May 2012 MODERN CASTING | 59
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