Natural gas demand at the utility level: An application of dynamic elasticities

Previous studies provide strong evidence that energy demand elasticities vary across regions and states, arguing in favor of conducting energy demand studies at the smallest unit of observation for which good quality data are readily available, that is the utility level. We use monthly data from the...

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Bibliographic Details
Published in:Energy economics 2012-07, Vol.34 (4), p.961-969
Main Author: Dagher, Leila
Format: Article
Language:English
Subjects:
ADL
Applied sciences
Colorado
Consumers
Demand analysis
Dynamic elasticities
Economic data
Economics
Elasticity of demand
Energy
Energy economics
Energy policy
Exact sciences and technology
Fossil fuels and derived products
Gas
General, economic and professional studies
Income
Methodology. Modelling
Natural gas
Natural gas demand
Power demand
Prices
Regional variation
U.S.A
Utilities
Vector-autoregressive models
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Summary:Previous studies provide strong evidence that energy demand elasticities vary across regions and states, arguing in favor of conducting energy demand studies at the smallest unit of observation for which good quality data are readily available, that is the utility level. We use monthly data from the residential sector of Xcel Energy's service territory in Colorado for the period January 1994 to September 2006. Based on a very general Autoregressive Distributed Lag model this paper uses a new approach to simulate the dynamic behavior of natural gas demand and obtain dynamic elasticities. Knowing consumers' response on a unit time basis enables one to answer a number of questions, such as, the length of time needed to reach demand stability. Responses to price and income were found to be much lower–even in the long run–than has been commonly suggested in the literature. Interestingly, we find that the long run equilibrium is reached relatively quickly, around 18months after a change in price or income has occurred, while the literature implies a much longer period for complete adjustments to take place. ► Dynamic elasticities are estimated by simulating the dynamic behavior of NG demand. ► LR equilibrium is reached around 18 months following a change in price or income. ► NG demand elasticities are lower than what is generally suggested in the literature.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2011.05.010