Industry Overview: Energy and Utilities

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Posted by The Editors on December 3, 2012
Overview
In the summer of 2008 you could bet most Americans were complaining about the same thing: rising gas prices. Oil peaked in July at $147 a barrel, before eventually sliding back down. The summer rally made it very clear that Americans have come to expect cheap forms of energy. But Americans also harbor deep concerns about relying on foreign oil, the environmental and economic impact of fossil fuel consumption, and the politics behind big oil companies making record profits while the economy in general is on the ropes. What this all adds up to is a big push for innovative and green sources of energy, which is gaining steam in the US and around the world.

The energy and utility industries are expected to take new steps to meet demand and protect the environment, whether that means uncovering more efficient ways to procure oil, installing giant wind farms, producing cheaper solar cells, developing next-generation nuclear facilities, or exploring other alternative energy sources. President Obama is also pushing the United States in the direction of alternative energy as a long-term solution, actively pursuing legislation in favor of renewable energy initiatives and providing funding for green energy in the American Recovery and Reinvestment Act of 2009.

Energy-saving initatives aren't new, of course. The invention of the steam engine in 1775 helped fuel the industrial revolution, contributing to a 500-percent increase in energy efficiency. The modern global economy remains dependent on energy produced from natural resources. The process begins when energy companies extract fossil fuels such as petroleum, coal, and natural gas from the Earth or convert energy from wind, flowing water, or the sun into usable forms of energy, such as electricity. The result is the energy on which industrial countries depend. Without it we could not run our home appliances or our factories, travel by car or airplane, talk on the phone, or watch television.

Though non-renewable resources are increasingly supplemented by renewable energies such as solar, wind, geothermal, hydro, and biomass, in 2007 these sources only accounted for 7 percent of U.S. energy usage. Fossil fuels accounted for about 80 percent of world energy consumption, with oil leading the pack as the single most used source. The Organization of Petroleum Exporting Countries (OPEC) projects that oil will continue to lead through 2020. On the other hand, "peak oil" theorists claim that the maximum rate that we can extract oil from the Earth has already been or will soon be reached-and that, within decades after that peak, the world's oil supply will in effect run out, sending shockwaves through the global economy.

While the question of when oil will reach a point of decline is still up for debate, there are several concerns when it comes to the world's heavy dependence on oil-including environmental dangers and price hikes caused by increasing demand from emerging economies like those of India and China.

Conflicting forces will continue to shape the future of the energy industry. Deregulation, initiated by the 1992 National Energy Policy Act, is transforming energy companies from regulated monopolies to free-market competitors, changing the face of the utilities industry. Continuing expansion of industrial development across the planet will spur increased global consumption of energy. However, that will also cause worsening pollution and the depletion of natural resources. In the near term, though, neither environmental concerns nor volatile oil prices are likely to threaten the U.S. energy and utilities industries' role as a major energy providers, and suppliers of technology and expert services. It enjoys annual revenues of hundreds of billions of dollars and a demand that could double by 2020.


Trends


A Push to Green Energy
Critics of former president George W. Bush's energy policy said he rejected environmental concerns (characterized by his opposition to the Kyoto Protocol) in favor of appeasing Big Oil. Bush did, however, recognize U.S. dependence on oil and in 2007 he signed the Energy Independence and Security Act. This sought to fund alternative energy research, create green jobs, and increase energy security and savings. Critics still squawked, claiming it wasn't enough and the initiatives would not be upheld.

In 2009, President Barack Obama signed the American Recovery and Reinvestment Act into law, a $787 billion stimulus plan that devoted $43 billion toward energy initiatives similar to those in the 2007 plan: creating green jobs, providing and extending tax cuts for renewable sources, funding research, and creating a smart electricity grid. Obama's energy policy also calls for more of U.S. electricity to come from renewable sources: up to 10 percent in 2012 and 25 percent in 2025.

Though public opinion has greatly shifted toward support of renewable energy, time will tell how the Recovery Act will take effect. And though renewable energy sources, such as wind, solar, geothermal, and hydropower, are more sustainable and environmentally friendly, they do face significant obstacles, including convenience, cost, and the fact that some are still in development and will not be immediately available for wide-scale use.

Carbon Trading

During President Obama's first Earth Day in office, he encouraged Congress to create a cap-and-trade system for American businesses. The purpose of cap-and-trade is to reduce greenhouse gas emissions, which contribute to global warming. The "cap" would force companies to buy permits that would allow them to emit a limited amount of carbon, with the amount permitted to be reduced over time. The "trade" aspect gives businesses that emit less carbon the opportunity to sell their extra permits. With a set amount of permits circulating, the government can track exactly how much carbon is being emitted, and implement reductions over time. Obama has set a goal of reducing greenhouse gas emissions 20 percent by 2020, and democrats in Congress have introduced preliminary legislation. Critics of cap-and-trade systems say this is a tax on businesses that will drive up costs and limit growth.
Political Unrest
Militant conflicts in Iraq, Afghanistan, and Pakistan. The never-ending violence between Israel and Palestine. It all adds up to massive uncertainty for energy and utility companies. Will oil prices remain steady, allowing the companies to predict profitability and create business plans in which they can feel confident? Or will violence on a large or small scale suddenly cause oil prices to skyrocket? Not only do these factors put prices in jeopardy, they also complicate U.S. relations with the countries that provide a lot of petroleum. The energy and utilities industry, like the world in general, can be very volatile.

Consolidation

To enhance economies of scale and increase energy reserves, the big have been getting bigger of late. The industry saw at least 155 mergers in the late 1990s through the early 2000s. First, British Petroleum merged with Amoco, in 1998, to form BP. Then, Exxon acquired Mobil in 1999, to form Exxon Mobil. Also in 1999, France's TOTAL acquired Belgium's PetroFina, to form TOTAL FINA. In 2000, BP acquired the Atlantic Richfield Company. In 2001, Chevron acquired Texaco. In 2002, Conoco and Phillips Petroleum merged to form ConocoPhillips. Then Shell and Royal Dutch Petroleum merged in 2004, to form Royal Dutch Shell. And in 2005, Chevron acquired Unocal. The point: If you go to work in the oil sector, don't necessarily expect to have the same corporate name on your business card for your tenure with a company.


How it Breaks Down


America's energy companies are clustered in the Oil Patch region of Louisiana and East Texas, though many have major offices in Los Angeles and other coastal cities. The Big Oil companies are global; Exxon Mobil alone has a presence in more than 100 countries. By contrast, utilities are generally more local in nature, usually doing business in a single city or region. The vast industry can be broken down as follows.

Integrated Oil and Natural Gas

We have John D. Rockefeller and his Standard Oil Company to thank for the vertical integration of the world's largest oil and energy companies. His empire has long since been dispersed, but its legacy remains in the form of giants like Chevron, Exxon Mobil, and ConocoPhillips, which are involved in every phase of petroleum production and sales-from the extraction of crude oil through refining and shipping all the way to the gas pump. Big Oil is a major force in the world's economy (not to mention politics), but it is susceptible to global surpluses and plummeting oil prices when members of the OPEC can't agree on regulated production levels.

Consumption and production of natural gas have grown far more rapidly in recent years partly due to gas's environmental advantage over oil. Also, natural gas is relatively less expensive as an electricity-generating fuel-an advantage that has been magnified by the competitive nature of the electricity industry since deregulation. While Big Oil is increasingly involved in the natural gas business, there are still specialists such as Questar Corporation. Deregulation is also a frequent occurrence in the natural gas business-about 20 states in the U.S. have paved the way for permitting customers to choose their gas suppliers. However, only five states and the District of Columbia have allowed complete retail competition for both residential and commercial customers.

Coal

Coal is primarily used for electricity generation and in a few manufacturing industries-it is the dominant fuel used to generate steam in power plants, ahead of nuclear power, natural gas, and petroleum. It is increasingly in demand as developing countries, such as China and India, wire themselves for electricity. However, environmental concerns have begun to put a damper on the use of coal. The 1990 Clean Air Act called for cuts in high-sulfur coal production, and there are growing worries about global warming caused by burning fossil fuels. One option would be to adopt "clean coal" practices, which aim to decrease the harmful emissions caused by coal combustion through methods such as washing toxins off coal and carbon sequestering. Obama supports clean coal and dedicated a portion of recovery funds to clean coal technology, but environmental groups, such as GreenPeace, say that clean coal is a myth because it simply moves toxins around rather than eliminating them. In any event, if consumption continues at current levels, reserves will last only another 200 years. In the near-future, though, coal production and consumption should continue to be robust.

Biodiesel
Biodiesel, which creates fuel from fats and vegetable oils, has been getting a lot of press over the past few years. Former President George W. Bush pointed to it as a particularly promising alternative energy option and country music legend Willie Nelson tours the country on a bus fueled by it. But some observers say the potential market is limited-that biodiesel is a cost-effective alternative as long as it relies on recycled vegetable oils (refuse from restaurants, and the like), but that it will never become a mass energy source because growing enough plant life to support a mass market in biodiesel will be prohibitively expensive. It may also drive up the prices of food should the supply be used for more than just eating.

Nuclear

Nuclear energy, which comprises about 19 percent of U.S. electricity, is relatively clean and easily produced. But on the same token, it has dangerous by-products, and some of the materials and technology required for nuclear reactors could be used for destructive purposes if in the wrong hands. The generation process involves extracting energy from Uranium through nuclear fission, or breaking the Uranium atoms apart. Nuclear waste, also known as spent fuel, is highly radioactive and must be carefully stored. Recent U.S. plans had been to use Yucca Mountain in Nevada as a storage facility, but President Obama, while he supports the development of nuclear as a supplementary source of energy, has called on scientists to come up with new ways to store nuclear by-products.

Renewables

The term "renewables" refers to sources of energy that can be continuously replenished as opposed to those that are finite, like oil. Varieties include hydropower, wind power, solar power, and geothermal. These sources are considered more environmentally friendly, and with the rapidly rising popularity of all things green, it should come as no surprise that this sector is expanding significantly. Renewable energy is mostly used for electricity and heat, and private companies comprise much of the industry. Hydropower is the most widely used source, but its production is limited to areas with moving water. Solar, on the other hand, is a flexible source that is more accessible to individual consumers. Because of that, many solar companies are local retailers, like Boulder-based Namaste Solar and the Texas Solar Power Company. Wind energy companies tend to be larger, such as Dutch-based wind-energy company Vestas and German conglomerate Siemens. Oil companies like BP and Shell are jumping on the renewable bandwagon as well by investing in renewable sources.

Utilities

Energy and the means of its distribution are considered so vital to life as we know it that utilities companies are generally quite heavily regulated by state and federal governments if not government owned. More than 3,000 utilities in the United States deliver electric power to individual homes and businesses. Major players include Atlanta-based Southern Company (the nation's largest investor-owned utility) as well as regional giants such as Pacific Gas and Electric in California and Consolidated Edison in New York. The balance of the industry is comprised of federal agencies such as the Tennessee Valley Authority; local, publicly owned utilities, which are usually run by municipal or state agencies; and rural, nonprofit electric cooperatives, which serve small communities. In Obama's Recovery and Reinvestment Act, he provides funds for the creation of a "smart electricity grid," which would make the existing grid more efficient. This project could take a long time to develop, but if it goes through it could save consumers money and create many jobs for contractors, manufacturers, installers, and utilities.

Non-utilities

Though they're in the business of electric power generation and distribution, non-utilities serve large individual clients-mostly utility companies that need extra electricity-as opposed to cities or regions. Though non-utilities, such as Duke Energy, only account for about 10 percent of power generation, they represent the fastest-growing sector of the industry. In the wake of deregulation, smaller-scale generators are freer to sell energy to big distributors, and small, efficient producers can be quite profitable.

Equipment and Service

Companies such as Schlumberger and Halliburton, provide the equipment and services that make it possible for the oil, coal, and gas companies to extract their products from the ground. This once-booming sector took a hard hit in the late '90s due to overproduction. Some are also feeling the pinch today from decreased demand as a result of the recession. While the largest companies will most likely survive, boutique firms are often more vulnerable to market fluctuations.

What Industry Professionals Like


Meet a Need

Unless we collectively forgo the automobile and microwave in favor of the horse and buggy and wood stove, the energy and utilities industry is here for the long haul. Work in this industry and you'll help provide a product that's absolutely indispensable to modern life, powering hospitals, factories, and homes.

Change Is Good

Deregulation has the utilities scrambling to compete. That's good news for young, resourceful employees, who can now make a difference in organizations that were once barely discernible from state bureaucracies. "People are really beginning to see how their work ties in with a company's end goals," says one insider. "We're looking for employees who can think independently, even in entry-level positions." Utilities are also expanding into new businesses from trading energy to providing telecommunications products, and that spells good news for job seekers who combine technological expertise with business acumen.

High-Tech Heaven

Everyone in the energy business recognizes the need for innovation. "Even Big Oil knows the future is limited unless they expand into new areas," says one insider. Companies are constantly seeking to use technology to cut costs and increase efficiency. And many-mainly integrated oil companies-have enough capital to support cutting-edge research into alternative fuels and other exciting projects that could transform the way the world powers itself. If you're interested in the practical application of your technological skills, this may be the industry for you.What to Watch Out For


Electrical Engineer or Gas Engineer

These are the people who design or maintain power plants or natural gas delivery systems, or ensure the smooth operation of the complex grid that connects power plants and individual homes and businesses. A BS in electrical or gas engineering is generally required. New grads can expect to begin by performing technical support and analysis. More experienced engineers can move on to project planning and management, where duties range from cost analysis to the evaluation of new products and technologies.
Salary range: $45,000 to $110,000.

Mechanical Engineer/Civil Engineer/Architect

These engineers design and oversee industry construction projects-offshore oil rigs, dams, wind farms, etc.-built by energy and utilities companies. A BS in engineering or architecture is a minimum requirement. Recent grads handle the nitty-gritty of design and structural analysis; experienced people move on to project planning and management, where duties range from the planning of future projects to management and cost analysis once work is underway.
Salary range: $45,000 to $100,000.

Computer Systems or Telecommunications Specialist

Jobs range from technical support and troubleshooting for existing systems to the planning, purchasing, and implementation of new systems. The best positions require at least a BS in computer science or a related field; strong communications skills and project management experience are big pluses.
Salary range: $35,000 to $120,000.


Petroleum Engineer or Geologist

These are the people responsible for the discovery and development of new oil deposits. Geologists, geophysicists, and geology engineers form the team that figures out where and how deep to drill; petroleum engineers handle the drilling itself, plus the production, processing, and transport of the extracted crude. Minimum requirements include a BS in petroleum engineering or a geology-related field; a higher technical or business-related degree will help you move from technology support positions into project management.
Salary range: $60,000 to $110,000.

Chemical Engineer

These are the people responsible for turning the raw materials into salable products-for example, the transformation of crude oil into gasoline. Recent grads with a BS in chemical engineering provide support for day-to-day operations; experienced chemical engineers can expect to participate in project management as well as the planning and development of future projects.
Salary range: $45,000 to $105,000.

Project Manager

For candidates who combine technical training with excellent business and communication skills, project management is the way to go. Stress levels can be high, but so are the pay and the sense of accomplishment that comes with the work. These jobs require at least a BS in engineering, as well as an MBA or an excellent industry track record.
Salary range: $70,000 to $150,000 or more.

Lobbyist

The utilities industry is still in limbo, half-regulated and half-deregulated. That means that lobbying and public relations are key to determining the future of the industry. Candidates with JDs are particularly attractive for these positions, though excellent communication and people skills and lobbying experience are often sufficient to get the job.
Salary range: up to $150,000 or more.

Marketer or Public Relations Specialist

Marketing people must have a solid understanding of both the client's energy needs and the utility or energy company's ability to meet them. Candidates who combine technical and marketing backgrounds have the edge.
Salary range: $30,000 to $150,000.

Trade Representative

Traditionally, people in these positions handled the sales of oil and other energy products in the futures markets. These days, electricity is becoming as much a commodity as oil; as a result, utilities now offer these types of positions as well. Candidates should have degrees in either engineering or business and marketing, plus proven negotiation or communication skills. People with both technology and MBA degrees can expect to do particularly well.
Salary range: $50,000 to $150,000.

"Green Collar" Jobs

Though many of the roles at renewable energy companies are similar to traditional roles, there is now a movement toward training workers in jobs specific to green energy/utilities. These include home weatherization to make consumer's energy expenditures more efficient, manufacturing of solar panels and wind turbines, plus installation and maintenance of the panels and turbines.
The first thing to do before you apply for a job is study the changes that are rapidly transforming energy and utilities companies; if you do, you'll be better prepared to ride the wave of change washing over the industry, and impress your recruiters with your knowledge. Here are some other tips for your job search:

.    Highlight your technical expertise. Energy and utilities companies are highly dependent on advanced technology, and they need people who can design, build, and maintain technology systems. As a result, companies are willing to hire and train people with proven technical aptitude, even if you don't have experience with the specific technology you're being hired to use.

.    Work on your communication skills. Even engineers and technical people must be able to communicate with their colleagues; in fact, one insider estimates that 50 percent of a new engineer's work involves communications-an experienced engineer with project management duties sees the proportion increase to 90 percent. Recruiters know this, and they'll be watching how well you listen and communicate.

.    Play up your business acumen. "All our employees need to be aware of our company's business drivers," says a recruiter for a large utility company. Even if you're in a specialized field, recruiters will be impressed if you understand what makes a company profitable and how your work adds to the bottom line. You'll also want to emphasize your leadership skills. As the market tightens for certain engineering positions, recruiters can afford to be pickier. High grades are great, but if you can demonstrate leadership and project management skills, a company is more likely to consider you for the long term.

.    Network, network, network. Call any contacts you might have to demonstrate your strong desire to work for a particular company. If you're a student, participate in on-campus recruiting. Most big energy and utilities companies come to campuses, so take advantage of their presence.