Uncharted Waters — Again?
Power and gas companies should accept that energy prices are unpredictable and volatile; that uncertainty is a basic structural feature of the business environment.
By David Barker, Mark Matousek, and Gardner Walkup
Strategic Decisions Group
February 2006
Significant competitive advantage will accrue to those who embrace the uncertainty of commodity prices as opposed to those who pursue the siren call of a "better" forecast.
The future of energy prices influences almost every major strategic decision in the power and gas industry. Pundits have suggested that high oil prices are here to stay. But is this, in the immortal words of Yogi Berra, "déjà vu all over again"? In the 1970s, oil prices rose rapidly and respected forecasters claimed that $100 per barrel was on the horizon. But in 1986, oil prices crashed, not recovering their 1980 peak until recently.
Maybe things are different this time, and current forecasts of supply, demand, and price will prove more accurate than in the past.
Maybe, but we doubt it.
The authors believe leaders of power and gas companies should accept that energy prices are unpredictable and volatile; that uncertainty is a basic structural feature of the business environment. Significant competitive advantage will accrue to those who embrace the uncertainty of commodity prices as opposed to those who pursue the siren call of a "better" forecast.
