  Everybodys favorite topic these days is the cost of energy. People are surprised that the oil and gas companies are charging so much for what consumers have taken for granted, and abused, for so long.
Consumers should grab a Starbucks latte and start thinking seriously about this topic. One of the more critical areas that is a source of my frustration is the short term thinking that goes into the pricing of the commodities. My frustration was that commodity pricing was essentially based on the availability of product as reflected in the current inventory, general deliverability and storage.
I felt that this has been short sighted and needs to be revised. The point I discovered is that the pricing assumption is not necessarily incorrect. The inventory numbers are supported through the assumption that all oil and gas reserves on a worldwide basis have been reported as increasing year over year. The oil and gas companies continued to find more then they produced, therefore the situation was constantly improving.
This tacit understanding was not flawed but a reasonable assumption. The issue today is the reserves of the oil and gas companies are beginning to be questioned as to their validity. Trained in management I always found reserve engineering to be somewhat of a black art as opposed to a science. These reserves, as Mr.Mattheww Simmons states, are known exactly what they are when they are gone, much in the same way an actuarial knows when the subject has died.
Everything else is an educated guess. Unfortunately the oil and gas companies needed to optimize their reserves in the past 15 years based on the stock market demands for performance, and the consumer markets demand for energy. Deliverability became the issue more then the reserves. Again, as Simmons states, there has been a limited amount of application of known technologies to prove the reserves were not there. This has created a situation where some producers are writing down the value of reserves. The situation is well documented at Shell and recently was noted in El Paso's reserve write down of 40%.
It appears to me that the latter instance creating little or no market response. Another issue that will amplify the scope of the write-downs is the fact that reserves are booked as financial assets on the oil and gas companys financial statements. The statements are valued on the prices realized; less capital required to access them and the operating cost to recover them.
The issue should be defined by the fact that the majority of the gas reserves recorded when there was an abundant gas reserve, but at the low gas prices of around $1.50. When the reserves are booked there is an implicit need to reflect the commercial value, and would have probably been valued at their net of around $0.25. At the current gas prices of $5.95 the net should therefore be around +/- $2.50. It is inappropriate for a company to restate their reserves upwards to reflect their revised market value, but accounting rules require the strict recording of the lower of cost or market value.
The question then should be asked by those that are drinking Starbucks coffee is: Why are Starbucks prices going up to cover the costs of milk? Why are gas reserves being written down on producers balance sheet? I can assure those that are able to answer the second question will begin to understand the real value of energy very soon. 
