Measuring the “Inelasticity” of the Energy curve…

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  • Tue, Aug 26, 2008 - 03:24am

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    Xflies

    Xflies

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    Measuring the “Inelasticity” of the Energy curve…

I also forgot to mention that we have done some good work on the theoretical inelastic demand curve of energy. These volatile price periods allow for an amazing real time experiment where we can try to measure the elasticity of something that was thought to be inelastic. Our initial findings is that there has been an incredible 4.5-6bcf/d of demand destruction in natgas powered generation but there is evidence that we are even more sensitive to peak power scenarios. In otherwords, our demand to degree day curve has changed to become much steeper. In 2005 we had a very hot year across the US and air conditioning sales went through the roof. Since then we haven’t had as hot of a summer although Oct 2007 was extremely hot in comparison to the average. There is a lot of latent energy demand sitting in those air conditioners and what we are noticing is that people are conserving in these times of high energy costs but when they get uncomfortable, they say ‘screw it’ to those savings and turn on that air condition full blast. Again, some very interesting implications come from this but you are right… we are in the midst of some amazing changes but this ability to run a real time experiment on the demand elasticity is just as much fun to watch.

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