Read Finance In Action on page 423 : 'Energy A High Risk Industry. Please comment after your reading.

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One industry that affects world economies is United States would find so much naturai gas in energy. This industry includes coal, natural the Marcellus Shale of Pennsylvania and West gas, oil, wind, solar, and even the Canadian tar Virginia and other shale formations in Texas, sands. The prices of all these types of energy Colorado, North Dakota, and other western are important to every person and company states. that uses electricity, buses, cars, airplanes, Now this should all seem like good news. trains, plastics, fertilizer, and more. The search but environmentalists are worried that these for energy sources can be high risk and can low natural gas prices will set back wind and result in either large deposits that generate high solar power projects as natural gas is now returns or no returns if nothing is found. Addi- more cost competitive. This affects the capitionally, as companies search for oil in deeper tal budgeting projects for electric utilities and and deeper waters, the technology used is changes the balance between coal, oil, and more sophisticated and the chance of a disas. gas-generating plants. It also atfects the budter becomes higher. Just ask BP about the more ding solar industry and companies like General than $20 billion in fines and claims that it will Electric and Siemens that make electric genercost the company to settle the Gulf of Mexico ating wind turbines. Deepwater Horizon rig explosion that occurred Natual gas is more likely to replace coal than in April 2010. Did BP include the potential cost stunt the growth of green energy. With Presiof disasters in its worldwide drilling program? dent Biden's emphasis on green energy, wind Ten years ago no one would have been farms and solar energy should grow faster than talking about the prospect of U.S. energy in the past. But until battery technology can independence. The U.S, became cnergy store energy for long periods of time, we will stil independent by 2018 due to the increased need electricity produced with fossil fuels. recovery of oil from shale in the Permian The ability of the United States to become Basin in Texas, the Marcellus shale in Penn- energy independent also has a geopolitisylvania and New York and other shale for- cal impact as it reduces. U.S, dependence on mations in Colorado, the Dakotas, Wyoming. Middle East oil, which at times can be unprezing part of the story is that new found sources of oil and gas will reduce some technology, such as horizontal drilling and of the uncertainty of supply constraints. At its hydraulic fracturing. has found ways to get peak, the United States imported $300 biltion more oil and gas out of old deposits and to of oll per yeat, and so more domestic oll prorecover oll and gas trom places that were duction will help the country reduce its trade previously unrecoverable. Estimates are that Imbalance. This will affect the economy and the United States now has found enough notu- the value of the dollar and other unpredictable ral gas for 50 years and is stil finding more. benefits and costs. Notural gas is priced per one thousand We have presented an ever-changing cubic feet of natural gas or by its equivalent, picture of energy and its costs, which needs 1 million BTUs (British thermal units). The price to be forecast by many companies around the of natural gas has gone from $12 per thousand world. The point is that even though we can cubic feet in 2008 , to $6 in 2011 , to $2 in 2012. try to put probabilites on potential outcomes, and $2.73 in 2021. Now if anyone could have the accuracy of our forecasts is probably not predicted this price movement, capltal budget. too high. Given the economic interactions of ing decisions would have been greatly infiu- energy on multiple industries, all the conseenced. Ten years ago, no ane knew that the quences are difficult to predict