Why Energy Leaders Ought to Be “Mostly Right” Instead of “Precisely Wrong”
The idea in one line
Perfect forecasts don’t exist. Useful ones help you make good choices across many possible futures. (Statistician George Box put it this way: “All models are wrong, but some are useful.”)
Why chasing perfection backfires
Real life is messy. Rocks underground, weather, politics, and supply chains don’t follow tidy patterns.
The world keeps shifting. Prices, technology, and policy can change faster than your model.
Mistakes are expensive. A “precisely wrong” plan can lock you into costly assets or delays.
A vivid example: on April 20, 2020, U.S. oil (WTI) futures briefly went below $0 because storage was tight and the market was stressed—an outcome most models had never contemplated.
What the field has taught us
Subsurface projects: A model that nails last year’s wells can stumble when geology changes slightly.
The energy transition: Many outlooks kept revising renewables upward as costs fell and adoption sped up; the IEA’s 2023 outlook shows oil, gas, and coal demand peaking this decade in some scenarios—an important signal for long-life investments.
Power grids: Planning around the “most likely” day leaves systems exposed. After the Texas freeze (Feb 2021), U.S. regulators recommended tougher winterization and better gas–power coordination to avoid repeats.
The “mostly right” playbook (simple and practical)
1. Use scenarios, not a single number
Plan for a few clearly different futures (e.g., strong policy push, middle-of-the-road, policy rollback). This is now standard guidance for boards and disclosure, not a niche technique.
2. Stress-test for extremes
Ask, “What if storage is full? What if a cold snap or heatwave hits? What if a key policy changes overnight?” The Texas experience shows why this matters.
3. Talk in ranges
Share bands (low / mid / high) instead of a “hero” number. Ranges set realistic expectations and create space to adapt.
4. Set tripwires
Pick a few leading signals—EV sales, carbon prices, LNG spreads, wind/solar output—and agree in advance what you’ll do if a signal crosses a threshold.
5. Keep options open
Favor modular projects, and off-ramps. Flexibility beats fragile precision when the world moves.
Bottom line
In energy, uncertainty is the norm, not a surprise. Leaders who aim to be mostly right—by planning across scenarios, stressing for extremes, and keeping options open—protect more value when the unexpected happens. Usefulness beats false precision.
Sources
1. EIA. “Oil prices turned negative on April 20, 2020, as supply overwhelmed storage capacity.” (Explainer / Today in Energy).
2. FERC / NERC. “Cold Weather Grid Operations: February 2021 Texas Event” (Joint Staff Report) and subsequent NERC seasonal reliability assessments.
3. International Energy Agency (IEA). World Energy Outlook 2023 — key findings on demand peaking for oil, gas, and coal under some scenarios.
4. Task Force on Climate-related Financial Disclosures (TCFD). “Guidance on Scenario Analysis.”
5. George E. P. Box. “All models are wrong, but some are useful.” (Popularized aphorism from Box’s writings and talks).
