ABSTRACT
Almost all long-term assessments by industry, consultants and academics forecast rising oil prices that would lead to the development of high cost alternative energy sources, such as shale oil, and coal liquefaction and gasification. While the elasticity between the price of oil and oil demand are determined by a wide variety of factors and are the subject of intense academic debate, if oil prices fall precipitously in the short run, it appears likely that at least high cost conservation measures, such as the replacement of energy inefficient machinery, which has not yet been amortized, will be delayed if not postponed. In any event, those analysts who generalize about how oil production in high cost areas will be affected at various price levels should be wary since the economics of a field brought into production during the high inflation years of 1979-80 will vary greatly from those brought into production in earlier years.
