B_2009_Editors_Letter

Editor's Letter

Dec. 22, 2010

Astrology and Energy Prices

The start of a new year is the season of soothsayers.

Landslides of reports predict the economy’s future, and economists dissect the key factors like so many bones in a fortune-telling ritual.

Although I relish jokes about economists’ failings (did you know that economists have predicted nine of the last five recessions?), I still read forecasts. For the facilities industry, a key factor is future energy prices. Forecasts on this topic can run hundreds of pages and are among the most slippery documents I know. They contain a welter of "reference cases" and U-pick scenarios based on the global economy, geopolitics, energy production, climate change, regulations, new technology, energy reserves, etc. The outcome depends on the scenario you choose, making these exercises into a kind of multiple-choice fortunetelling game – and all done with a straight face.

BUILDINGS subscribers are also concerned about rising energy prices. As you will read in the 2011 industry outlook on page 22, 71% of subscribers surveyed said that expectations for higher energy prices had impacted their 2011 budgets.

Forecasts agree that worldwide energy demand will increase due to surges in emerging countries. Closer to home, the U.S. Energy Information Administration (EIA) foresees new, energy-efficient technology that will lessen some demands. For example, U.S. electricity consumption for lighting will grow at less than half the rate of annual growth in commercial floor space. That’s an encouraging sign, but new technology is a wild tarot card. On the other hand, growth in power consumption for some office equipment is projected to double the growth in floor space.

No one should be lulled into thinking that the recession’s decline in energy prices will continue much longer. EIA price projections in the accompanying chart show that an imminent upward turn is an omen of the future through 2035. (And note that the chart is in constant dollars; if current dollars were used, the ascending lines would be steeper.)

That’s a horoscope I would not bet against.

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