Prices Near a 10-Year Low, Is There A Black Swan Ahead?

As Nassim Talib writes in "The Black Swan", we take what we know a little too seriously. Talib wisely concluded during the financial crisis that nobody knew what was going on. During the energy market collapse in 2008, the same could have been said about the energy analysts. Proof of the irrational state was the point when natural gas was priced higher than crude oil on a BTU-to-BTU basis.

The glut of natural gas in the US is a Black Swan event. Fortunately, it has been a positive event. The beneficiaries of the disruptive technology are energy purchasers, our customers. The questions that we are all asking ourselves is how low will the prices go and how long will it be before they rise again. We have no answers for either query. We do know that commodity prices have dramatic swings. We also know that natural gas is near a ten-year low.

Is there another Black Swan event down the road that may prove to be negative, such as a hurricane, or a disruptive war? After reading The Black Swan, the answer is definitely yes. We should expect the unexpected. When the majority of energy analysts state that all looks rosy for natural gas, you might want to lock-in prices as a hedge against a flock of black swans.

Contact us at 585-249-1360 to discuss your energy strategy through 2014 with one of our energy professionals.

Interesting News & Energy Resources:

Feds Approve Exelon-Constellation Merger (Baltimore Sun)

The $7.9 Billion deal will create the largest non-utility energy provider in the US. While Baltimore will lose its last Fortune 500 company, the Maryland Public Service Commission won promises and commitments that will benefit the state and ratepayers. For example, each of Constellation's BG&E ratepayers will receive a $100.00 rebate check. The new company has also promised to spend a billion dollars in the state and create over 600 jobs.

Coal, Nuclear And Natural Gas: What Will Keep The Lights On? (AOL Energy)

While coal and nuclear power are declining in the US, the rest of the world views the two energy drivers as essential for development. David Mohler of Duke Energy warns that greater dependence on natural gas in the US may have some unintended consequences.

At CERA, Industry Execs Plan for US Natural Gas Exports (National Journal)

The huge CERA Energy Conference in Houston last week generated little real news. However, the esteemed conference attracts the most powerful people in the energy world.

Updates From CERA (WSJ-Online)

A selection of updates from the WSJ reporters attending the conference. Basically, there is a lot of schmoozing and deal making, but nothing earthshaking has ever come out of a CERA conference.

17-Year Old Discusses His Nuclear Fusion Experiment at TED (TED)

While there was no mention of nuclear fusion at the CERA event, last week's TED Conference hosted a talk by an inventor whose product could make all hydrocarbon-based energy sources obsolete. The inventor is Taylor Wilson who was 14-years old when he designed his fusor. (For More on Taylor and his fusion experiments read Pop-Sci.com.)

Pilgrim Nuclear Plant in Massachusetts May Gain License Renewal

This Week (Reuters)

Entergy's 685 MWH plant, if approved, will operate until 2032. The NRC has never revoked an operator's license, but it has taken longer to review plant conditions and operating procedures. Entergy's Indian Point plants, which are located just outside of New York City are still under review in terms of licensing.

Oil-Gas Ratio Exceeds 50

The above chart shows that the oil and gas industry has cooled considerably regarding natural gas since 2008. The economics of crude are far more appealing than shale gas. Crude is priced globally and is therefore subject to world supply and demand constraints and political fear, which is at a high point right now. Natural gas is a domestic product that is shielded from risk.

Researched and Written By Martin Linskey