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Price Responsiveness of Residential Demand for Natural Gas in the United States

Author

Listed:
  • Raymond Li

    (Faculty of Business, Government & Law, University of Canberra, Bruce 2617, Australia)

  • Chi-Keung Woo

    (Department of Asian and Policy Studies, The Education University of Hong Kong, Hong Kong, China)

  • Asher Tishler

    (Coller School of Management, Tel Aviv University, Tel Aviv 6997801, Israel)

  • Jay Zarnikau

    (Department of Economics, University of Texas at Austin, Austin, TX 78712, USA)

Abstract

While price responsiveness of residential demand for natural gas has important implications on resource planning and energy modelling, its estimates from prior studies are very diverse. Applying panel data analysis and five parametric specifications to monthly data for the lower 48 states in 1990–2019, we estimate own-price elasticities of residential demand for natural gas in the United States (US). Using results from cross-section dependence (CD) test, panel unit root tests, panel time-series estimators, and rolling-window analysis, we document: (1) the statistically significant ( p -value ≤ 0.05) static own-price elasticity estimates are −0.271 to −0.486, short-run −0.238 to −0.555 and long-run −0.323 to −0.796; (2) these estimates vary by elasticity type, sample period, parametric specification, treatment of CD and assumption of partial adjustment; (3) erroneously ignoring the highly significant ( p -value < 0.01) CD shrinks the size of these estimates that vary seasonally, regionally, and nonlinearly over time; and (4) residential natural gas shortage costs decline with the size of own-price elasticity estimates. These findings suggest that achieving deep decarbonization may require strategies that do not rely solely on prices, such as energy efficiency standards and demand-side-management programs. Demand response programs may prove useful for managing natural gas shortages.

Suggested Citation

  • Raymond Li & Chi-Keung Woo & Asher Tishler & Jay Zarnikau, 2022. "Price Responsiveness of Residential Demand for Natural Gas in the United States," Energies, MDPI, vol. 15(12), pages 1-22, June.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:12:p:4231-:d:834474
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