June 9, 2017
Interviewed by: Privcap
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“Black Swans” in Energy

Joe Brusuelas of RSM and Chris Ortega of TPG Capital discuss the anomalies of a changing energy market.

Joe Brusuelas of RSM and Chris Ortega of TPG Capital discuss the anomalies of a changing energy market.

“Black Swans” in Energy

David Snow, Privcap:
Today we’re joined by Joe Brusuelas, Chief Economist of RSM, and Chris Ortega, who leads the energy investment practice at TPG Capital. Gentlemen, welcome to Privcap. Thanks for being here.

Let’s look ahead five to 10 years. I wonder what could be some black swan-type events that would really disrupt your world as an investor or disrupt the macroeconomic environment for energy?

Chris Ortega, TPG Capital:
If we start bringing on some of those OPEC barrels that previously were held off the market, I think you’re going to see a continued pressure on oil price.

I think that will ultimately lead to a series of have and have-nots within the oil and gas space. So, if you’re benefiting from this oil and gas technology like folks are onshore in the U.S., you’ll be in a good position. However, for example, if you’re somebody focused on deep water—whether it be in the Gulf of Mexico or offshore Brazil or offshore West Africa—it may be a bit tougher.

Snow: Joe, what are some black swan-type events that could happen?

Joe Brusuelas, RSM:
There are three things that I look at: the first two are what I call “D-squared”—de-globalization and disruption of NAFTA. If the U.S. retreats into fortress America and we limit our exposure to the global sector, we’ll lose some efficiencies. Second, I don’t think it’s understood how well U.S. consumers benefit from an integrated North American energy market. The third is geopolitical security concerns in the Middle East. The Middle East is still proceeding through an extended period of protracted conflict, which is an almost biblical outward migration, and we don’t know how that’s going to end. So, you think about black swans, with a left tail distribution, it seems to be growing wider with respect to geopolitical and security concerns in that region.

Snow: For the record, how do consumers benefit from an integrated North American energy market?

Brusuelas: Lower prices. Energy moves freely across the North American land mass, whether it’s from Canada to Canada or from Mexico or to Mexico. We all benefit from that. And, as we complete that distribution infrastructure over the next 10 to 15 years, I think we’ll be able to quantify per person the actual benefit we get from lower energy costs overall.

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