New Geography

Tag: Energy

  • Which Cities Will the High Cost of Energy Hurt (and Help) the Most?

    A high cost energy future will profoundly impact the cost of doing business and create new opportunities, but not necessarily in the way most people expect.

    By Joel Kotkin and Michael Shires

    The New York Times, the Atlantic Monthly and the rest of the establishment press have their answer: big cities like New York, Chicago, and San Francisco will win out. Our assessment is: not so fast. There’s a lot about the unfolding energy economy that is more complex than commonly believed, and could have consequences that are somewhat unanticipated.

    On the plus side there are some undoubted winners — those areas that produce energy and those with energy expertise. What’s working for Moscow, St. Petersburg, Calgary, Edmonton, and Dubai is also working for the U.S. energy regions as well. Not surprisingly, many are located deep in the heart of Texas. This includes not only big cities like energy mega-capital Houston but a host of smaller ones, like high-flyers Midland, Odessa and Longview.

    But it’s not just Texas cities that are winning. A host of other places have strong ties to energy production and exploration — Salt Lake City, Denver, and the North Dakota cities of Bismarck, Fargo, and Grand Forks. And it’s not just oil: The U.S. Great Plains have also been described as “the Saudi Arabia of wind.” If the right incentives are put in place, a wind-belt from west Texas to the Canadian border could be produce new jobs, both in building mills and also for the industries — manufacturers, computer-related companies — that will harness the relatively cheap energy.

    Alternative renewal energy producers in biofuels, thermal, and hydro-electric will also become big business. The Sierra Nevada cities like Reno could benefit from thermal; the Pacific Northwest’s hydro-power gives places like Portland, Seattle, and a host of smaller communities — Wenatchee, Bend, Olympia — a great competitive advantage in terms of dependable, low cost and low carbon energy.

    How about the big cities and metros that consume less energy? It seems logical that San Francisco, D.C., Los Angeles, Boston, Chicago, and New York should have an advantage over other cities and their suburban hinterlands; these cities, especially New York, have higher than average transit use. San Francisco and Los Angeles enjoy milder climates requiring less air conditioning and heating.

    But these advantages are somewhat mitigated by the fact that these same cities often pay far more for energy than their rivals. Electricity in New York, notes an upcoming study by the New York-based Center for an Urban Future, costs twice the national average. California cities also suffer much higher prices — almost 50 percent higher than their counterparts in the Midwest. So even if you use considerably less energy, you might end up paying more. Being a big, dense city clearly has advantages, but they too often are squandered by aging infrastructure, lack of new plants and high business costs.

    One other problem for big Northern cities: colder regions will feel the ripple in local economies as the impact of high heating bills is felt next winter. A cold winter will push northeastern city-dwellers to join the chorus of complaints now voiced by drivers in auto-heavy Sunbelt states like Florida and California.

    Nor is it certain suburban areas will do so much worse in tough energy times. Studies of commuting patterns in Chicago and Los Angeles show that many suburbs thirty miles or more from their downtowns — places like Naperville, Illinois and Thousand Oaks or Irvine, California — have shorter commutes than most inner-ring urbanites. This is a result of the movement of jobs to “nodes” on the periphery over the past 30 years.

    Another kind of area that will do well are those that have well-developed telecommuter economies. In Los Angeles, notes California State University at Los Angeles geographer Ali Modarres, telecommuters are concentrated not only in places like Santa Monica, but also in sections of the San Fernando Valley (which has most of the region’s entertainment workers) as well as further out inu highly educated communities like Thousand Oaks and Irvine. In the long run, the best and most energy efficient commute is none at all.

    So who are the losers? Certainly some of the distant outer suburbs, like the high desert communities far east of Los Angeles, which lack jobs for their residents, and suffer longer than average commutes. Also hurt will be poorer inner city areas where workers have to commute, by transit or car, over great distances. Sadly, it’s many of the communities that have already suffered the most. The changeover to lower mileage vehicles will be particularly tough on those communities that produce SUVs and trucks — places like Flint, Michigan; Ft. Wayne Indiana; and Janesville, Wisconsin.

    But there are also some auto centers that are likely to do better. Just follow where low-mileage vehicles, particularly those built by Toyota, Honda, Nissan, and the Korean makers, are either being built or planned. This is mostly a southern play — Tupelo, Mississippi; Nashville, Tennessee; and Georgetown, Kentucky, site of the largest Toyota plant outside Japan.

    Economic change has always impacted America’s communities. But with the current energy price surge, we may find that “creative destruction” may be sweeping through many communities even faster than we anticipated.

    Cities and Oil Prices: The Winners and The Losers

    For most places, it’s hard to tell what the long-term effect of the high cost of energy might be. But there are some fairly safe bets.

    Two kinds of areas tend to perform best in a harsh energy environment. One is the energy-producing cities, whose place at the top of this list should come as no surprise. Another, though it may take a bit longer to emerge, may be those cities that are sites for production of fuel-efficient vehicles. These tend to be located in parts of the country — Texas, the Southeast, and the Great Plains — that have lower energy costs and more favorable business climates.

    Winners:

    1. Houston: This is one town where $150 a barrel gasoline is viewed more as an opportunity than an atrocity. Not that Houstonians don’t drive — like other Texans, they tend toward the profligate in energy use. But prices are not terribly high by national standards and, more to the point, energy is producing lots of high wage jobs here for both blue- and white-collar workers. As headquarters to sixteen large energy firms — far more than New York, Dallas, and Los Angeles combined — Houston, which ranks No. 4 on our list of the best large cities to do business, provides an irresistible lure to hundreds of smaller firms specializing in everything from shipping and distribution of energy, to trading, exploration and geological modeling.
    2. Midland-Odessa, Texas: Houston is no longer the oil production center it once was, but the twin cities of Midland (No. 1 on our Best Cities list overall and among small cities) and Odessa (No. 4 on the list of small cities) certainly are. The two cities, only 20 miles apart in the energy rich Permian Basin, experienced hard times when energy prices dropped. Office buildings went empty, and people fled. But now the big problem is finding enough labor to keep the rigs going. Boomtimes are back — and only a dramatic change in the energy markets will slow them down.
    3. Bismarck, North Dakota: No. 30 on our Best Cities list of small cities, Bismarck may be in the early stages of a big time expansion. It’s the closest “big” city to the rapidly developing Bakken range — rich with oil and shale deposits — and already enjoys the advantages of being the capitol of a state that boasts a $1 billion surplus. North Dakota’s biofuels, wind, and coal industries also make the city a natural focal point for Great Plains energy. As in Midland-Odessa, the biggest constraint may well prove to be the availability of labor.
    4. The Mid-south Autobelt: The shift to smaller cars may seem dismal in Detroit, but it’s pure joy to much of the mid-South. Foreign companies specializing in energy efficient vehicles — Volkswagen, Kia, Honda, Nissan — are concentrated in a belt running from Nashville (No. 18 on the large metro list) and Chattanooga (No. 59 on midsize list) in Tennessee to Huntsville, Alabama (No. 5 on the midsize list). Local universities in the area are also getting into the act, with several cooperating in an automotive research alliance.

    Our list of losers is all too familiar. Basically, these are areas dominated by America’s weak automakers and are particularly wedded to the SUVs and trucks that are losing market share at an astonishing rate. Most fall in states that are strong union bastions, have relatively high energy prices, and get much of their energy from coal, a fuel that’s even less popular with environmentalists than oil is.

    Losers:

    1. Detroit: The center of the American auto industry ranks dead last, No. 66, on our big city list. The Motor City’s legacy as headquarters town for the former Big Three is now its biggest headache. It’s not just factory workers being hurt here; Detroit is where much of the technical, manufacturing, and design talent base of the U.S. auto industry resides. It’s also where ad agencies, law firms, and other high-end business service providers to the industry cluster. All have taken big hits over the last few years, which has led to increased out-migration, high rates of foreclosure and a deteriorating fiscal situation.
    2. Flint, Michigan: No. 171 on the small city list, just two from the bottom, Flint seems to make more and more of what Americans don’t want. In 2006, it made more than 170,000 pickup trucks; it’s doubtful it will see that level of production for a long time to come. And this is a place that was hurting even before gas prices went up. Over 40 percent of all manufacturing jobs disappeared between 2002 and 2007.
    3. Ft. Wayne, Indiana: Compared to Flint or Detroit, Ft. Wayne (No. 85 on the mid-sized list) is not doing too badly. Between 2002 and 2007 manufacturing employment dropped only 2.5 percent. The big problem is the future of the industrial sector. Ft. Wayne made 200,000 pickup trucks in 2006. It’s hard to see many of these jobs surviving if energy prices stay high.
    4. Janesville, Wisconsin: No. 92 on the small list, the Janesville plant manufactures GMC Yukon, the Yukon XL, the Chevy Tahoe, and the Suburban. Although more than 200,000 SUVs were produced at this plant in 2006, the plant will close by the end of 2010. The largest private employer in Janesville is Mercy Health Systems. Being in Wisconsin helps — the state is in better shape than Midwest neighbors such as Michigan and Ohio.

    Joel Kotkin is a presidential fellow at Chapman University and executive editor of Newgeography.com.

    Michael Shires, Ph.D. is a professor at Pepperdine University School of Public Policy.

  • Energy Makes a Super-city

    Superlatives can no longer describe Dubai – there are simply too many. It is now the fastest growing city in the world with $300 billion of construction underway. Once Dubai was a sleepy Arab port nestled between its larger and more famous oil rich neighbors: Iraq, Iran and Saudi Arabia. Now tiny Dubai is home to the “world’s tallest building,” and more construction cranes than China and its 1.4 billion people. What is more amazing is that Dubai has a population of just 200,000 native Emirates within a land area one-half the size of Orange County, California. If you count all the workers, the city has a population of 1.8 million.

    It all started with the Burj Al Arab, the “world’s first 7-star hotel,” rising more than 50 floors above the Persian Gulf. Its unique sail shape makes it instantly recognizable. The Burj Al Arab has grown into iconic stature, like the Eiffel Tower.

    The Burj Dubai, the “world’s tallest building,” has passed 165 floors and no one except the Absolute Ruler of Dubai knows the final height. The Burj Dubai is 100 percent sold out. It will contain the world’s first Armani Hotel, and the world’s most expensive offices. Its competitor, Al Burj, a few miles down the road at the Dubai Waterfront, is reported to be 200 floors but they will not commit until Burj Dubai stops its reach for the sky.

    Shoppers can choose from the Mall of the Emirates, the “world’s first shopping mall with an indoor ski slope,” or the Dubai Mall, the “world’s largest shopping mall” at 10 million square feet. It will not reign long as the world’s largest – the Mall of Arabia will be 12 million square feet. The Mall of Arabia will be located at Dubai Land in the “world’s largest amusement park” – three times the size of Disneyworld. These Dubai malls will later be dwarfed by the Bawadi District with 60,000 hotel rooms and 40 million square feet of retail in what will surely be the “world’s largest shopping mall.”

    The products displayed in these malls will pass through the Port of Jebel Ali, the “world’s largest man-made port,” and 8th busiest container part in the world. Jebel Ali is one of three man-made structures that can be seen from outer space – the Hoover Dam and the Great Wall of China being the others.

    Shoppers will arrive at DXB, Dubai’s brand new airport built to accommodate 120 million passengers annually. DXB will become the “world’s busiest airport,” easily surpassing Atlanta Hartsfield, which accommodated 72 million passengers last year.

    New residents of Dubai have already moved into Dubai Marina, the “world’s largest marina,” even larger than Marina Del Rey in Los Angeles. Dubai Marina will be home to 200 residential towers each more than 40 floors with six towers of more than 90 stories. The Princess Tower at 107 stories is the “world’s tallest residential tower,” but the Pentominium, at 120 floors, will become “the world’s tallest residential tower,” next year. Its neighbor, Infinity Tower, at just 80 floors, will be the “world’s tallest tower featuring a 90-degree twist.”

    Dubai has the “world’s largest man-made residential islands” with four of them. Palm Jumeirah, the first of the Palm-shaped trilogy is three-by-five miles. It sold 4,000 residences along 17 separate fronds in three days. Thirty-two hotels will line the trunk. At the crescent of Palm Jumeirah is Atlantis, a 2,000-room hotel. The 61-story Trump International Tower straddles the monorail that connects the Palm to the mainland. The penthouse recently sold for $30 million making it the “world’s most expensive penthouse.” The Queen Elizabeth 2 ocean liner was purchased by Sheikh Mohamed and will be docked at Palm Jumeirah.

    Palm Jebel Ali is 50 percent larger than Palm Jumeirah and part of the Dubai Waterfront project that will house 1.7 million people upon completion in 2020. Jebel Ali will be larger than Paris at seven-by-five miles. Besides 8,000 residences and fifty hotels, homes will be built on stilts with a boardwalk that circles the fronds and spells out a poem written by Sheikh Mohamed that reads:

    Take wisdom from the wise
    It takes a man of vision to write on water
    Not everyone who rides a horse is a jockey
    Great men rise to greater challenges

    Palm Deira, largest of the Palm trilogy, will become the “world’s largest man-made island,” larger than New York’s Manhattan, bigger than central Paris and almost as big as Greater London. Palm Deira will house one million residents. The 42 fronds will be twice as large as its sister Palm islands at nine-by-five miles. Palm Deira will be connected to the mainland by a Central Island that will become the commercial center of the community on the north end of Dubai.

    The fourth offshore mega-project is The World, a collection of 300 islands intended to look like the world from outer space. The project stretches five-by-three miles and is surrounded by an oval breakwater to protect the individual islands from Persian Gulf storms and waves. The ambitious 300-island project will cost $14 billion when completed. Individual islands will sell from $15 million to $250 million. To date, more than half have been sold but that may be deceiving as only half have been offered for sale.

    If these superlatives were not enough, Dubai is building a business center to rival New York City’s Manhattan, London’s City or Tokyo’s Ginza Strip . Business Bay will wrap around the Burj Dubai and contain 230 high-rise office towers, each 40 floors or more. All 230 office towers are sold. The Burl Al Alam will be the “world’s tallest commercial tower” at 108 floors of mixed-use apartments, office and hotel. When completed this business center will contain 64 million square feet of office space. Halliburton and Baker-Hughes have already announced that Dubai will become their world headquarters.

    Easily lost in the superlative is the size of Dubai. It is only one of seven emirates that make up the United Arab Emirates. It is not an oil rich nation like its neighbor. Abu Dhabi that owns 94 percent of the oil in the UAE. Dubai’s oil will run out in 2016. Sheikh Mohamed, Emir and Absolute Ruler of Dubai, steered Dubai onto a course of development predicting the rise in oil prices that would bring a gusher of oil money into the Persian Gulf. Each day the nations that surround the Persian Gulf pump 20 million barrels of oil to a thirsty world. At $140/barrel, they earn $2.8 billion per day, $19.6 billion per week, $84 billion per month and $1 trillion per year.

    Dubai correctly anticipated the staggering transfer of wealth to the Arab oil producing states and like a smart business man, geared up to provide plenty of product for his wealthy clientele. With $300 billion of projects under development and one-third of the world’s cranes, Dubai has become the “fastest growing city in the world,” – yet another superlative that hardly tells the story. It is a story of a city about to become a player on a global scale – and one that the established great urban regions will have to take seriously in the years to come.

    Robert J. Cristiano Ph.D. has more than 25 years experience in real estate development in Southern California. He obtained financing from the Middle East following the collapse of the savings & loan industry in the early 90s and has become an expert on that region. He is a resident of Newport Beach, CA.

  • The New Boom Towns

    The steep hike in gas and energy prices has created a national debate about the future of American metropolitan areas — mostly about the reputed decline of suburbs and edge cities dependent on cars. But with all this focus on the troubles of traditional suburbs, one big story is overlooked: the rapid rise of America’s energy-producing metropolitan areas.

    In many of the nation’s strongest regional economies, $5 a gallon gas is less a threat than a boon. From Houston and Midland in Texas, to a score of cities across the Great Plains, today’s energy crisis is creating new wealth and new jobs in a way not seen since, well, the energy crisis of the 1970s.

    This reflects a global trend that is turning once out-of-the-way places, like Dubai and Alma Alty, into glittering high-rise cities. Other energy- and commodity-rich places are undergoing a similar boom — from Moscow and St. Petersburg in Russia, to Calgary and Edmonton in Canada and Perth in Australia.

    What all these places have going for them is control of what Kent Briggs, former chief of staff for Utah’s late Gov. Scott Matheson, once called “the testicles of the universe.” These cities base their wealth not on clever financial technology, cultural attributes or university-honed skills but on their position as centers of the global commodities boom.

    In the process, there has been a shift in the balance of economic power away from financial and information centers like New York, Los Angeles, Boston, Chicago and San Francisco. These cities are deeply vulnerable to the national financial and mortage crises. New York, according to David Shulman, former Lehman Brothers managing director, faces upward of 30,000 to 40,000 layoffs in its financial sector. San Francisco in the last quarter gave away a Transamerica Pyramid’s worth of office space.

    In contrast, things have never looked better for cities now riding the energy and commodity boom. By far the biggest winner is Houston, whose breakneck growth has been fueled by its role as the world’s premier energy city. As with Dubai, this is less a function of the city’s proximity of actual deposits (though the Gulf of Mexico represents one of the most promising energy finds in North America), than to its premier role as the technical, trading and administrative center of the worldwide industry.

    This prominence is, in historic terms, relatively recent. As late as the 1980s “oil bust,” notes historian Joe Feagin, Houston’s energy sector remained “a colony of New York,” where many of key industry corporate and financial decision-makers still lived.

    Yet, today, Houston’s national, even global dominance, of the energy business is palpable. With the lure of low-cost office space and housing stock, as well as myriad personal ties among executives and leading engineers, Houston managed to consolidate its position as the predominant center of the oil and gas industry. In 1960, Houston had barely one of the nation’s large energy firms, ranking well behind New York, Los Angeles and even Tulsa; today it has 16, more than all those cities combined.

    High wages offered by energy firms — annual salaries for geologists average $132,000 or more; while blue-collar workers make roughly $60,000 — have attracted a new generation of skilled executives and technicians to the region, which also enjoys a far lower cost a living than many other major cities. Areas like River Oaks, Galleria and Energy Corridor are home to well-educated, upwardly mobile workers in their late 20s and 30s. The area is growing at a time when these workers are, according to recent census numbers, leaving places like San Francisco, New York, Los Angeles and Boston.

    “People from other areas say that you guys don’t make much down there,“ said Houston executive recruiter Chris Schoettelkotte. “[But] the guys from L.A. make the same amount of money in the same field here. We pull them from Wharton, the Ivy League and Stanford and they get paid through the nose… Houston can get the talent.”

    Houston’s status as energy capital is also propelling it into the ranks of first-tier cities. Today, Houston has the third largest representation of consular offices. It ranks behind only Los Angeles and New York, and has outstripped traditional commercial centers like San Francisco and Chicago.

    It’s energy, along with the port and growing airport, that makes the Texas city a world capital. “When I go overseas people put Houston with New York and L.A.,” said Houston salvage entrepreneur Charlie Wilson. “In many cases, Houston is considered to be at the top of the world class because of oil. If you’re in China, you’re looking at Houston because of the oil.”

    But Houston is not alone in benefiting from the rising price of energy and other commodities. According to the new Inc./Newgeography.com job growth rankings other energy cities include Dallas — home of Exxon Mobil –- as well as smaller Texas burgs like Midland, Odessa and Longview.

    This is a dramatic turnaround for places like Midland. Until recently, said Midland oilman Mike Bradford, wildcatters had held back from drilling, because they feared the high oil prices would not last. Now they are convinced that the energy market has broken free of OPEC control and prices will remain high. “We think high [oil and gas] prices are for real — and we’re going nuts,” said Bradford, who also sits on the Midland County Commission.

    But you don’t have to be in Texas to be part of an energy boomtown. Bakersfield, Calif., oil capital, is also thriving, despite the hard times throughout the Golden State because of the mortgage crisis. Alaskans, who now receive more than $1,600 per capita from the state’s Permanent Fund Dividend, twice what they received in 2005, are likely to see their wealth increase. If there’s an expansion of drilling there, look for Anchorage and other Alaskan cities to enjoy even flusher times.

    Another hot spot is in the Great Plains. Energy production and high commodity prices are pacing the economies of regional centers like Des Moines; Billings, Mont.; Cheyenne, Wy., and Sioux Falls, S.D. In Bismarck, Grand Forks and Fargo, N.D., where incomes are surging, there’s a sense that these are the best of times. One sure sign: The energy boom — coal, oil, wind as well as biofuels — has produced a a billion-dollar state surplus for North Dakota.

    The energy and commodity boom is changing the face of these small cities in key ways. Fargo, the butt of sophisticated jokes with the Coen Brothers’ movie, now boasts a first-class arena, fine restaurants, a luxurious boutique hotel and a thriving arts scene.

    Grand Forks has a growing condo market. Scores of smaller cities — like Bismarck and Dickinson – are also showing signs of a new quasi-urban sophistication. After decades of demographic stagnation, some of these towns are seeing healthy population gains.

    Rising unemployment is not a problem here; a looming labor shortage is. In some markets, there are signing bonuses and $12-an-hour wages at fast-food business.

    If energy prices hold firm, and particularly if the nation begins to ramp up energy production, we can see the boomtimes extend to energy-rich Utah, Colorado, New Mexico and Louisiana. These can mean more growth in already healthy economies like Albuquerque, Salt Lake City and Denver; but also for long hard-pressed New Orleans and other Gulf Coast cities.

    Finally there’s another group of potential winners: areas that have been selected to produce the energy-efficient vehicles of the future. Even as Detroit, Flint and Ft. Wayne, Ind.,– producers of SUVs and trucks — suffer, many cities in the mid-South, like Nashville, Huntsville and Chattanooga, Tenn., seem certain to gain as Nissan, Toyota, Volkswagen and other foreign producers ramp up production.

    Perhaps the ultimate example of “world turned upside down” by energy prices may end up being Mississippi, long a perennial loser in the economic sweepstakes. But this week, Toyota announced it would start building its popular hybrid Prius in Blue Springs, Miss., in late 2010. That’s just outside Tupelo, Elvis’ birthplace.

    We may not see a reappearance of the King — but for many people this resurgence is just as stunning.

    None of this, however, suggests that San Francisco, Los Angeles or New York are about to be eclipsed by Houston — much less Fargo or Tupelo. But if the history of cities tells us anything, places well-positioned for growth industries tend to emerge as ever more serious players.

    It worked for industrial cities like Chicago, which emerged from obscurity in the late 19th Century; or later for high-tech centers like San Jose, Austin and Boston. If energy and commodity prices stay high for another decade, we may have to get used to a shift in the power of places across the American landscape.

    Joel Kotkin is a presidential fellow in urban futures at Chapman University and the author of “The City: A Global History.” He is executive editor of the website newgeography.com. This article first appeared at The Washington Independent.