HOUSTON--Price volatility is in vogue in natural gas markets, according to the chief energy economist at the University of Texas at Austin, and the fluctuation is expected to linger for a while.

Dr. Michelle Foss, whose career is built around studying oil and gas statistics and developing economic forecasts, said, “We’ve created volatility in the market trying to solve midstream problems, trying to figure out where to locate infrastructure. We’ve done a pretty good job of trying to build up frack spreads and a pretty good job of pulling them down as we’ve added capacity. That will continue.”

Regarding oil prices, Foss said that there is room for them to fall. One component of her theory is Iraq. She and colleagues at UT conducted an Iraq-centered study for the Department of Energy three years ago. “It was one of the most interesting pieces of work that we’ve had,” she said. “There is an enormous oil supply there. There were 3.5 million barrels of production in February. Somebody’s going to figure out how to get oil out of Iraq safely and into the global economy. If that happens, it would put pressure on oil prices.”

Foss, who was one of the featured speakers at Oil and Gas Investor’s Energy Capital Conference in June, talked about her line of work and presented what she called “a tour of what is on the minds of economists.”

“We get asked all the time to talk to people about the economic impact of what the [oil and gas] industry does, what the capital markets provide and what the capital providers themselves help to facilitate. Honestly, I’m really tired of talking about jobs. Jobs, jobs, jobs. There’s really no good way to measure that. There are so many countervailing forces,” she said. Instead, she offered “some numbers you can take out of this conference and actually use.”

On a global basis, 32 billion barrels of oil were produced in 2011, the last complete year with finalized statistics. For marketed gas, the 2011 output was 124 trillion cubic feet. The estimated market value of the two is US$5 trillion.

She continued: Global GDP for 2011, in current U.S. dollars, was $71 trillion. Using a formula to determine global oil output on a U.S. dollar-basis, the amount translates as $51 trillion. “That’s an enormous amount of value added to the global economy from oil and gas,” Foss stated. “Of course this is why geopolitics are the way they are, why OPEC is the way it is. This is why we have plutocratic governments all over the place—including here in the United States—that are trying to get their fair share of all of this along with everyone else. That’s because the value creation is stupendous.”

What keeps economists up at night? Nothing else but the “wacky” and “unpredictable” nature of human beings, Foss said. “The dilemma [economists] have is that we do all of this economic modeling and roll it out there and it all looks very nice. We have a basic assumption that people are rational, that they’re profit-maximizing, that they really make decisions in a calculated way to optimize the benefit coming back to them. Of course, that really doesn’t happen. [People are] emotional and have a slew of biases.”

The most irritating bias for economists is when people look for information that only elevates, and does not challenge, their view of the world. Foss calls this confirmation bias.

“This is an enormous problem we have in terms of playmaking—what’s going on in the E&P segment itself—but also in how people view commodity markets and a lot of the larger issues that we’re dealing with, like climate.”

Confirmation bias is “huge” when it comes to climate, Foss contends. “The EPA will impact the gas industry enormously in the years ahead. “If you’ve been following the news on the latest climate proposal and how it’s getting couched, one of the key assumptions the [EPA] is making is that energy demand will be flat or declining.

“This is a useful thing [for the EPA] because it means [it] can impose rules on people—and maybe the effect won’t be as great as if you’ve got an economy that’s blowing and going and the demand for energy is really high.”