The Atlanta Fed's Energy Advisory Council met on March 25 for its semiannual meeting to discuss current economic conditions in the energy industry. On the whole, council members were optimistic about the energy sector and expect growth in 2014 to be solid in most of the sector's areas. However, council members shared concerns about infrastructure and transportation constraints and labor trends.
The unusually severe winter weather—and its exposure of limitations in the U.S. natural gas distribution infrastructure—was also a key topic of discussion during the meeting. Demand for natural gas was high and regional supply was sufficient, yet transportation and distribution were severely limited, particularly to the Northeast. To meet the demand for utilities, many power providers resorted to using coal instead of natural gas.
Some council members spoke about the importance of the rail industry in the distribution of energy products; demand for rail fleet was high and expected to grow. Members expressed hope that increased use of rail transport would help resolve transportation issues, yet many energy representatives were concerned that the rail industry would not be able to build fleet fast enough to keep up with demand.
Council members also discussed ongoing shortages of skilled labor. A shortage of engineers has led businesses to consider offshoring engineering and conceptual work. Firms were also concerned that there would not be enough tradesmen to execute projects slated for implementation later this year and into 2015. The shortages have created backlogs and caused firms to offshore an increasing number of projects, particularly modular construction of plants, meaning that a company unable to find the skilled labor needed to construct a plant facility may instead have the plant constructed abroad in modules and shipped to the United States for assembly. The technology required to transport large parts and equipment has become readily available and has become more cost effective than it was a few years ago.
Overall, council members are optimistic about the present and future of the energy sector, even as they continue to encounter challenges that must be surmounted to allow the sector to continue to thrive.
By Rebekah Durham, economic policy analysis specialist in the New Orleans Branch of the Atlanta Fed