Setting Up for Round Two
Going forward, look for the supply side to change to meet relatively stable demand.
Early 2001 was a case study in demand elasticity and supply side rigidity
- High prices led to efficient fuel switching & conservation
Unexpected macroeconomic conditions further dampened demand for gas and electricity
Now look to supply to equilibrate the market
- Production increase early 2001 will prove highly elastic in light of price signals last half of the year
- 2001 wells declining very rapidly
- Activity level must be very high to overcome basin exhaustion
Next cycle to be longer & stronger when economy picks up
- Power infrastructure in place to provide growth engine
- Industrial & residential/ commercial demand will recover
- Production will respond slowly on the upside
- Price will move back to a level that re-balances the market