How price responsive is industrial demand for natural gas in the United States?. (February 2022)

• Record Type: Journal Article
• Authors: Li, Raymond; Woo, Chi-Keung; Tishler, Asher; Zarnikau, Jay
• Is Part Of: Utilities policy. Volume 74(2022)
• Publication Date: 2022-02
• Subjects: Industrial natural gas demand -- Price elasticity -- Panel data analysis -- Cross-section dependence -- United States; Public utilities -- United States -- Periodicals; Public utilities -- Government policy -- United States -- Periodicals; 363.6
• DOI: 10.1016/j.jup.2021.101318
• Languages: English
• ISSNs: 0957-1787

Abstract

Abstract: Our panel data analysis of the price responsiveness of industrial demand for natural gas in the United States utilizes five parametric specifications and 10, 944 monthly observations for the lower 48 states in 2001–2019 to document statistically significant ( p -value ≤ 0.05) static own-price elasticity estimates of −0.027 to −0.062, short-run −0.029 to −0.125, and long-run −0.060 to −0.179. These estimates with relatively small absolute values support the continuation of energy efficiency standards and demand-side-management programs for deep decarbonization. Further, diverse price responsiveness among heterogeneous industrial customers suggests using demand-response programs to efficiently allocate the limited supply available during a natural gas shortage. Highlights: The own-price elasticity of demand for natural gas in the US industrial sector is explored. Five model specifications are tested. The use of elasticity estimates to estimate the cost of a natural gas shortage is demonstrated. Demand for this energy resource is price inelastic.