The Rise of Consultant Forecasting in Liberalized Natural Gas Markets

Arthur Mason

Natural gas forecasting has evolved into a lucrative enterprise in the wake of U.S. energy market restructuring. The field is composed of university-trained economists who have been hired by consulting firms to produce information about the future of energy markets. The increased visibility of these firms reflects a growing reliance on consultant advisory services that try to identify core uncertainties and to help organizations have the capacity to be ready for them.

In fall 2000, natural gas forecasters emerged as architects of an energy outlook capable of altering the U.S. natural gas industry. Basing their image of the future on a forecasted rise in the long-term price for natural gas, these economists predicted an expansion to the self-enclosed North American natural gas market. While the rise in price failed to materialize, their image of the future has since inspired government and financial leaders to establish a global gas industry.

The idea that the future has a significant role to play in the construction of the present is by no means a new one. Anthony Giddens writes that “under conditions of modernity, the future is continually drawn into the present by means of the reflexive organization of knowledge environments.”1 The discourse through which this occurs involves terminologies of risk. Ulrich Beck characterizes late modernity as a risk society, in which “everyone is caught up in defensive battles of various types, anticipating the hostile substances in one’s manner of living.”2

Calculating risk in the natural gas industry is also an open-ended, futureoriented project, the goal of which is to anticipate all loci of uncertainty while increasing the chance of economic success. This is especially the case since the 1980s, when market restructuring adopted institutions from the financial industry so that natural gas prices could be based on competition rather than regulation. Restructuring also expanded the role of energy marketers. Firms such as Enron (now bankrupt) and Dynergy can generate untold profits by speculating on prices located at different trading points along the continental natural gas pipeline network.

But the industry’s competitive structure has raised problems for an older market segment of energy producers and pipeline companies that seek to develop new sources of natural gas supply. By renouncing control over energy prices, government dismantled an environment in which financial instruments such as long-term contracts could diminish the high-stakes uncertainty of investing in large energy systems (pipelines, power stations). As such, market risk has become critically privatized. Today, it is extremely difficult to synchronize the long-term horizon of energy production, which is measured in years, with the short-term fluctuations of energy price. Tackling the problem is generating interest in technologies that can create perspectives that are fundamental for institutionalization and social coordination.

The purpose of this article is to identify a few of the forms in which natural gas forecasters and the consulting firms they work for become partly responsible for new energy development on a local and global scale. Since restructuring, consulting firms have had an organizational significance for the way government and industry leaders stabilize perspectives on energy markets. These firms combine technical prediction with new modes of communicative exchange and are important for the knowledge they generate but also for the forms of socialization and ritual-like learning environment they create.

In the following example drawn from fieldwork experience, I illustrate an integrated set of technologies — scenario planning, executive roundtable meetings, and Internet-based analyses — through which firms such as Cambridge Energy Research Associates (cera.com), Wood Mackenzie (woodmac.com), and Ziff Energy Group (www.ziffenergy.com) translate the uncertainties of a variety of stakeholders into their own network. By absorbing the fragmented understandings of their clients, consulting firms can provide them with an objectivized view of how the industry operates, including the risks. These understandings are becoming the undisputed assumptions in an industry characterized by controversy.

I want to emphasize the important role played by conceptualizations of the future in consultant advisory service. By producing a knowable and concrete future, consulting firms allow for the envisioning of disparate individuals as related through the simultaneity of time. Much like the production of what Benedict Anderson called “calendrical coincidence” in the lives of people near and far, consulting firms illustrate and, in doing so, produce a collective subjectivity on the energy future — a subjectivity, I might add, that is justificatory of ideals of progress, economic growth, and increased energy consumption.3

By capturing and mediating an entire ensemble of relations about the industry, consulting firms may also be regarded among the new transnational agents that Edward LiPuma and Benjamin Lee suggest are exerting control over economies once regulated in and through the national state.4 In their genealogy of global capitalism, LiPuma and Lee argue that, since the 1970s, markets have come to rely on a new genus of financial products and institutions whose dynamic privileges risk-to-reward ratios and whose culture they call speculative capital.

Speculative capital is a culture made up of “cultures of circulation” whose basis for generating profit relies on the circulation of knowledge, money, entertainment, and technology.5 It is becoming the leading edge of capitalism, and the “connectivity” that it produces — through communication networks, global financial instruments, and, as I would argue, consultant advisory services — is disrupting an industrial-based form of production with its emphasis on relations between a national labor regime, national currency, and sovereign bordered economy.6 Perhaps, as LiPuma and Lee argue, speculative capital amplifies a shift in power away from national state political systems and toward global financial markets. If so, then examining the advisory services of consulting firms can provide some of the details of how this transformation is taking place.

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Notes

I thank Maria Stoilkova, Claudio Lomnitz, Serguei Oushakine, and Stephen Collier for their comments on this essay.

1. Anthony Giddens, Modernity and Self-Identity (Stanford, Calif.: Stanford University Press, 1991), 3.
2. Ulrich Beck, “The Reinvention of Politics: Towards a Theory of Reflexive Modernization,” in Reflexive Modernization: Politics, Tradition and Aesthetics in the Modern Social Order, ed. Ulrich Beck, Anthony Giddens, and Scott Lash (Cambridge: Polity, 1994), 45.
3. Benedict Anderson, Imagined Communities: Reflections on the Origin and Spread of Nationalism (New York: Verso, 1991), 33.
4. Edward LiPuma and Benjamin Lee, Financial Derivatives and the Globalization of Risk (Durham, N.C.: Duke University Press, 2004).
5. LiPuma and Lee, Financial Derivatives, 9.
6. LiPuma and Lee, Financial Derivatives, 21, 85 – 106.