I think "expectations" might be an important stock, with the degree to which prices have been above or below expectation controlling (after a delay) the rate at which this stock changes. [key point: what controls the delay? Start by assuming it's fixed, perhaps.]

A lot of the data you need you can't get from econometric-type surveys.

The only way I know how to do this stuff is to hang around (on drilling sites and in board rooms), listening and asking questions. Hard to do, and pretty near impossible if you're not attached to a university (as I'm not).

Rockman freely shares his knowledge of how the industry works - that's really cool. He would be a great collaborator if he's willing.

Jon,

Sorry for the delayed response (spent a very long weekend on a troubled well site). You've gotten some good answers from others so I just flesh out a few points.

Mid-summer 2008: Our geologists were begging the drillers to get more rigs no matter what it took. Oct 2008: our geologists were begging the drillers to get rid of rigs as fast as possible. Dec 2008: Cut 2009 budget from $1.4 billion to less then $700 million. Jan 2009: began cutting 15 of our 18 UNG rigs free. Cost to terminate rig contracts early: $40 million. Since 1 Jan 2009 many 10's of thousands of service company hands and office consultants have been cut loose. (we use the rather benign phrase “sent to the house”).

This gives you some sense of the time factor. In 33 years I've never seen the industry react so quickly. Even in the global demand destruction period of the early 1980's it took the industry a year or two to cut back this far. Several reasons why so fast IMHO: 1) A very high percentage of consultants. I'll include service company personnel who work in-house for the operating companies. With two weeks notice an operator could eliminate 20% to 30% of the functioning office personnel. 2) The obvious drop in commodity prices. As I mentioned above with re: to UNG, profitability occurs in the first 2 - 3 years. When NG prices dropped the economics were destroyed virtually overnight. If one had a large conventional NG wild cat to drill they might proceed knowing that, while it might take longer to reach payout, the longevity of the reserves would eventually make it a viable resource. Not with UNG: sell the near term production cheap and there is no profit. 3) The declining credit market: I think this factor combined with the above led to the unprecedented speed of the slow down. Not only were the technical folks throwing the brakes on but also the CFO's.

You make an excellent analogy to the volatility (as a driver would over steer an overly responsive race car) of the UNG. Just a WAG on my part but I don’t think we’ll see a return of all those UNG drilling operations comparable to the build up we’ve seen the last few years. Too many folks have had the hell scared out of them the last 6 months and most of those folks will still be running the show in the next few years. Add that to an economy with limited ability to fund such expansions and it could turn into a worse case scenario: increasing demand driving up prices in the face of significant shortage without a rapid industry response to add production. And I don’t want to even try to speculate what the gov’t might try to do to “help” us should that situation arise.