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Residential Natural Gas Demand Elasticities in OECD Countries: An ARDL Bounds Testing Approach

Author

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  • Bernstein, Ronald

    () (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

  • Madlener, Reinhard

    () (E.ON Energy Research Center, Institute for Future Energy Consumer Needs and Behavior (FCN), RWTH Aachen University)

Abstract

In this paper we analyze residential natural gas demand in twelve OECD countries using time series data from 1980 to 2008. We estimate long-run demand elasticities with regard to real disposable income and real residential price of natural gas using the autoregressive distributed lag (ARDL) bounds testing procedure (Pesaran and Shin, 1999). The robustness of the long-run estimates is checked by additionally considering the FMOLS and DOLS estimators. By employing an error correction framework we also obtain estimates for the speeds of adjustment to long-run equilibrium and short-run elasticities for the individual countries. The effect of weather conditions on natural gas demand in a given year is accounted for by including heating degree days as a control variable. On average, the long-run elasticities are 0.94 with regard to income, –0.51 with regard to price and 1.35 with regard to weather. The short-run dynamics assessed by estimation of the error correction models indicate an average adjustment coefficient of –0.58, a short-run income elasticity of 0.45, a short-run price elasticity of –0.24, and a short-run weather elasticity of 0.72. Hence, on average, the short-run elasticities are approximately half in magnitude compared to their long-run counterparts.

Suggested Citation

  • Bernstein, Ronald & Madlener, Reinhard, 2011. "Residential Natural Gas Demand Elasticities in OECD Countries: An ARDL Bounds Testing Approach," FCN Working Papers 15/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
  • Handle: RePEc:ris:fcnwpa:2011_015
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    References listed on IDEAS

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    7. Berkhout, Peter H. G. & Ferrer-i-Carbonell, Ada & Muskens, Jos C., 2004. "The ex post impact of an energy tax on household energy demand," Energy Economics, Elsevier, vol. 26(3), pages 297-317, May.
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    Citations

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    Cited by:

    1. Khan, Muhammad Arshad, 2015. "Modelling and forecasting the demand for natural gas in Pakistan," Renewable and Sustainable Energy Reviews, Elsevier, vol. 49(C), pages 1145-1159.
    2. Arora, Vipin, 2014. "Estimates of the Price Elasticities of Natural Gas Supply and Demand in the United States," MPRA Paper 54232, University Library of Munich, Germany.
    3. Dergiades, Theologos & Madlener, Reinhard & Christofidou, Georgia, 2012. "The Nexus between Natural Gas Spot and Futures Prices at NYMEX: Do Weather Shocks and Non-Linear Causality in Low Frequencies Matter?," FCN Working Papers 17/2012, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Sep 2013.
    4. Kuper, Gerard & Mulder, Machiel, 2013. "Cross-border infrastructure constraints, regulatory measures and economic integration of the Dutch - German gas market," Research Report 13001-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    5. repec:dgr:rugsom:13001-eef is not listed on IDEAS
    6. Yu, Yihua & Zheng, Xinye & Han, Yi, 2014. "On the demand for natural gas in urban China," Energy Policy, Elsevier, vol. 70(C), pages 57-63.
    7. Rohlfs, Wilko & Madlener, Reinhard, 2011. "Multi-Commodity Real Options Analysis of Power Plant Investments: Discounting Endogenous Risk Structures," FCN Working Papers 22/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    8. Ackah, Ishmael, 2015. "Accounting for the effect of exogenous non-Economic variables on natural gas demand in oil producing African countries," MPRA Paper 81553, University Library of Munich, Germany.
    9. Harmsen - van Hout, Marjolein & Ghosh, Gaurav & Madlener, Reinhard, 2013. "An Evaluation of Attribute Anchoring Bias in a Choice Experimental Setting," FCN Working Papers 6/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    10. Li, Lanlan & Gong, Chengzhu & Tian, Shizhong & Jiao, Jianling, 2016. "The peak-shaving efficiency analysis of natural gas time-of-use pricing for residential consumers: Evidence from multi-agent simulation," Energy, Elsevier, vol. 96(C), pages 48-58.
    11. repec:rfh:bbejor:v:6:y:2017:i:3:p:117-129 is not listed on IDEAS
    12. Harold, Jason & Lyons, Seán & Cullinan, John, 2015. "The determinants of residential gas demand in Ireland," Energy Economics, Elsevier, vol. 51(C), pages 475-483.
    13. Rohlfs, Wilko & Madlener, Reinhard, 2013. "Challenges in the Evaluation of Ultra-Long-Lived Projects: Risk Premia for Projects with Eternal Returns or Costs," FCN Working Papers 13/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    14. Harmsen - van Hout, Marjolein & Ghosh, Gaurav & Madlener, Reinhard, 2013. "The Impact of Green Framing on Consumers’ Valuations of Energy-Saving Measures," FCN Working Papers 7/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    15. Copiello, Sergio & Grillenzoni, Carlo, 2017. "Is the cold the only reason why we heat our homes? Empirical evidence from spatial series data," Applied Energy, Elsevier, vol. 193(C), pages 491-506.

    More about this item

    Keywords

    Natural gas demand; Elasticities; ARDL; Bounds testing; OECD countries; Residential;

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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