IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v15y2022i12p4231-d834474.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/15/12/4231/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/15/12/4231/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ota, Toru & Kakinaka, Makoto & Kotani, Koji, 2018. "Demographic effects on residential electricity and city gas consumption in the aging society of Japan," Energy Policy, Elsevier, vol. 115(C), pages 503-513.
    2. Alberini, Anna & Khymych, Olha & Ščasný, Milan, 2020. "Responsiveness to energy price changes when salience is high: Residential natural gas demand in Ukraine," Energy Policy, Elsevier, vol. 144(C).
    3. Holz, Franziska & Richter, Philipp M. & Egging, Ruud, 2016. "The Role of Natural Gas in a Low-Carbon Europe: Infrastructure and Supply Security," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 37(SI37), pages 33-59.
    4. Li, Raymond & Woo, Chi-Keung & Cox, Kevin, 2021. "How price-responsive is residential retail electricity demand in the US?," Energy, Elsevier, vol. 232(C).
    5. Alcaraz, Carlo & Villalvazo, Sergio, 2017. "The effect of natural gas shortages on the Mexican economy," Energy Economics, Elsevier, vol. 66(C), pages 147-153.
    6. Labandeira, Xavier & Labeaga, José M. & López-Otero, Xiral, 2017. "A meta-analysis on the price elasticity of energy demand," Energy Policy, Elsevier, vol. 102(C), pages 549-568.
    7. Kenneth Gillingham & Richard G. Newell & Karen Palmer, 2009. "Energy Efficiency Economics and Policy," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 597-620, September.
    8. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    9. Huntington, Hillard G. & Barrios, James J. & Arora, Vipin, 2019. "Review of key international demand elasticities for major industrializing economies," Energy Policy, Elsevier, vol. 133(C).
    10. repec:ags:jrapmc:133220 is not listed on IDEAS
    11. Felipe Lavín & Larry Dale & Michael Hanemann & Mithra Moezzi, 2011. "The impact of price on residential demand for electricity and natural gas," Climatic Change, Springer, vol. 109(1), pages 171-189, December.
    12. Gail R. Blattenberger, & Lester D. Taylor, & Robert K. Retinhack, 1983. "Natural Gas Availability and the Residential Demand for Energy," The Energy Journal, , vol. 4(1), pages 23-45, January.
    13. Jan Abrell & Hannes Weigt, 2016. "Investments in a Combined Energy Network Model: Substitution between Natural Gas and Electricity?," The Energy Journal, , vol. 37(4), pages 63-86, October.
    14. Woo, Chi-Keung, 1994. "Managing water supply shortage : Interruption vs. pricing," Journal of Public Economics, Elsevier, vol. 54(1), pages 145-160, May.
    15. Mohammed A. Al-Sahlawi, 1989. "The Demand for Natural Gas: A Survey of Price and Income Elasticities," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 77-90.
    16. Woo, C.K. & Tishler, A. & Zarnikau, J. & Chen, Y., 2021. "Average residential outage cost estimates for the lower 48 states in the US," Energy Economics, Elsevier, vol. 98(C).
    17. Baturay Çalci, Benjamin D. Leibowicz, and Jonathan F. Bard, 2022. "North American Natural Gas Markets Under LNG Demand Growth and Infrastructure Restrictions," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    18. Zhang, Yi & Ji, Qiang & Fan, Ying, 2018. "The price and income elasticity of China's natural gas demand: A multi-sectoral perspective," Energy Policy, Elsevier, vol. 113(C), pages 332-341.
    19. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    20. Robert Bartels & Denzil G. Fiebig & Michael H. Plumb, 1996. "Gas or Electricity, which is Cheaper? An Econometric Approach with Application to Australian Expenditure Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 33-58.
    21. Javier Estrada & Ole Fugleberg, 1989. "Price Elasticities of Natural Gas Demand in France and West Germany," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 77-90.
    22. Leahy, Eimear & Devitt, Conor & Lyons, Seán & Tol, Richard S.J., 2012. "The cost of natural gas shortages in Ireland," Energy Policy, Elsevier, vol. 46(C), pages 153-169.
    23. Li, Raymond & Woo, Chi-Keung & Tishler, Asher & Zarnikau, Jay, 2022. "How price responsive is industrial demand for natural gas in the United States?," Utilities Policy, Elsevier, vol. 74(C).
    24. Ernst R. Berndt & G. Campbell Watkins, 1977. "Demand for Natural Gas: Residential and Commercial Markets in Ontario and British Columbia," Canadian Journal of Economics, Canadian Economics Association, vol. 10(1), pages 97-111, February.
    25. Yoo, Seung-Hoon & Lim, Hea-Jin & Kwak, Seung-Jun, 2009. "Estimating the residential demand function for natural gas in Seoul with correction for sample selection bias," Applied Energy, Elsevier, vol. 86(4), pages 460-465, April.
    26. Liu, Ben-chieh, 1983. "Natural gas price elasticities : Variations by region and by sector in the USA," Energy Economics, Elsevier, vol. 5(3), pages 195-201, July.
    27. Burns, Kelly, 2021. "An investigation into changes in the elasticity of U.S. residential natural gas consumption: A time-varying approach," Energy Economics, Elsevier, vol. 99(C).
    28. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    29. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    30. Lin, Winston T. & Chen, Yueh H. & Chatov, Robert, 1987. "The demand for natural gas, electricity and heating oil in the United States," Resources and Energy, Elsevier, vol. 9(3), pages 233-258, October.
    31. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    32. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    33. Kostakis, Ioannis & Lolos, Sarantis & Sardianou, Eleni, 2021. "Residential natural gas demand: Assessing the evidence from Greece using pseudo-panels, 2012–2019," Energy Economics, Elsevier, vol. 99(C).
    34. Kenneth Gillingham & Pei Huang, 2019. "Is Abundant Natural Gas a Bridge to a Low-carbon Future or a Dead-end?," The Energy Journal, , vol. 40(2), pages 1-26, March.
    35. Wadud, Zia & Dey, Himadri S. & Kabir, Md. Ashfanoor & Khan, Shahidul I., 2011. "Modeling and forecasting natural gas demand in Bangladesh," Energy Policy, Elsevier, vol. 39(11), pages 7372-7380.
    36. Dubin, Jeffrey A & Henson, Steven E, 1988. "An Engineering/Econometric Analysis of Seasonal Energy Demand and Conservation in the Pacific Northwest," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(1), pages 121-134, January.
    37. Bianco, Vincenzo & Scarpa, Federico & Tagliafico, Luca A., 2014. "Scenario analysis of nonresidential natural gas consumption in Italy," Applied Energy, Elsevier, vol. 113(C), pages 392-403.
    38. Woo, C.K. & Sreedharan, P. & Hargreaves, J. & Kahrl, F. & Wang, J. & Horowitz, I., 2014. "A review of electricity product differentiation," Applied Energy, Elsevier, vol. 114(C), pages 262-272.
    39. Maximilian Auffhammer & Edward Rubin, 2018. "Natural Gas Price Elasticities and Optimal Cost Recovery Under Consumer Heterogeneity: Evidence from 300 million natural gas bills," NBER Working Papers 24295, National Bureau of Economic Research, Inc.
    40. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
    41. Dahl, Carol A., 1993. "A survey of energy demand elasticities in support of the development of the NEMS," MPRA Paper 13962, University Library of Munich, Germany.
    42. Ishmael Ackah, 2014. "Determinants of natural gas demand in Ghana," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(3), pages 272-295, September.
    43. Lee, Jeong-Dong & Lee, Jongsu & Kim, Tai-Yoo, 2004. "Ex-ante analysis of welfare change for a liberalization of the natural gas market," Energy Economics, Elsevier, vol. 26(3), pages 447-461, May.
    44. Alan S. Manne & Richard G. Richels & John P. Weyant, 1979. "Feature Article—Energy Policy Modeling: A Survey," Operations Research, INFORMS, vol. 27(1), pages 1-36, February.
    45. Roberta Barnes & Robert Gillingham & Robert Hagemann, 1982. "The Short-Run Residential Demand for Natural Gas," The Energy Journal, , vol. 3(1), pages 59-72, January.
    46. Beierlein, James G & Dunn, James W & McConnon, James C, Jr, 1981. "The Demand for Electricity and Natural Gas in the Northeastern United States," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 403-408, August.
    47. Li, Lanlan & Luo, Xuan & Zhou, Kaile & Xu, Tingting, 2018. "Evaluation of increasing block pricing for households' natural gas: A case study of Beijing, China," Energy, Elsevier, vol. 157(C), pages 162-172.
    48. Burke, Paul J. & Yang, Hewen, 2016. "The price and income elasticities of natural gas demand: International evidence," Energy Economics, Elsevier, vol. 59(C), pages 466-474.
    49. Woo, C.K. & Shiu, A. & Liu, Y. & Luo, X. & Zarnikau, J., 2018. "Consumption effects of an electricity decarbonization policy: Hong Kong," Energy, Elsevier, vol. 144(C), pages 887-902.
    50. Asher Tishler & Stan Lipovetsky, 1997. "The Flexible Ces-Gbc Family Of Cost Functions: Derivation And Application," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 638-646, November.
    51. Chansu Lim, 2019. "Estimating Residential and Industrial City Gas Demand Function in the Republic of Korea—A Kalman Filter Application," Sustainability, MDPI, vol. 11(5), pages 1-12, March.
    52. Gautam, Tej K. & Paudel, Krishna P., 2018. "The demand for natural gas in the Northeastern United States," Energy, Elsevier, vol. 158(C), pages 890-898.
    53. Xiang, Di & Lawley, Chad, 2019. "The impact of British Columbia's carbon tax on residential natural gas consumption," Energy Economics, Elsevier, vol. 80(C), pages 206-218.
    54. Huntington, Hillard G., 2007. "Industrial natural gas consumption in the United States: An empirical model for evaluating future trends," Energy Economics, Elsevier, vol. 29(4), pages 743-759, July.
    55. Payne, James E. & Loomis, David G. & Wilson, Renardo, 2011. "Residential Natural Gas Demand in Illinois: Evidence from the ARDL Bounds Testing Approach," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 41(2), pages 1-10.
    56. Rowland, Christopher S. & Mjelde, James W. & Dharmasena, Senarath, 2017. "Policy implications of considering pre-commitments in U.S. aggregate energy demand system," Energy Policy, Elsevier, vol. 102(C), pages 406-413.
    57. Hu, Wenhao & Ho, Mun S. & Cao, Jing, 2019. "Energy consumption of urban households in China," China Economic Review, Elsevier, vol. 58(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Raymond & Woo, Chi-Keung & Tishler, Asher & Zarnikau, Jay, 2022. "How price responsive is industrial demand for natural gas in the United States?," Utilities Policy, Elsevier, vol. 74(C).
    2. Li, Raymond & Woo, Chi-Keung & Tishler, Asher & Zarnikau, Jay, 2022. "Price responsiveness of commercial demand for natural gas in the US," Energy, Elsevier, vol. 256(C).
    3. Cao, K.H. & Qi, H.S. & Li, R. & Woo, C.K. & Tishler, A. & Zarnikau, J., 2023. "An experiment in own-price elasticity estimation for non-residential electricity demand in the U.S," Utilities Policy, Elsevier, vol. 81(C).
    4. Woo, C.K. & Liu, Y. & Zarnikau, J. & Shiu, A. & Luo, X. & Kahrl, F., 2018. "Price elasticities of retail energy demands in the United States: New evidence from a panel of monthly data for 2001–2016," Applied Energy, Elsevier, vol. 222(C), pages 460-474.
    5. Ju-Hee Kim & Byoung-Soh Hwang & Seung-Hoon Yoo, 2022. "Estimating the Demand Function for Residential City Gas in South Korea: Findings from a Price Sensitivity Measurement Experiment," Sustainability, MDPI, vol. 14(12), pages 1-13, June.
    6. Kostakis, Ioannis & Lolos, Sarantis & Sardianou, Eleni, 2021. "Residential natural gas demand: Assessing the evidence from Greece using pseudo-panels, 2012–2019," Energy Economics, Elsevier, vol. 99(C).
    7. Malzi, Mohamed Jaouad & Sohag, Kazi & Vasbieva, Dinara G. & Ettahir, Aziz, 2020. "Environmental policy effectiveness on residential natural gas use in OECD countries," Resources Policy, Elsevier, vol. 66(C).
    8. Payne, James E. & Loomis, David G. & Wilson, Renardo, 2011. "Residential Natural Gas Demand in Illinois: Evidence from the ARDL Bounds Testing Approach," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 41(2), pages 1-10.
    9. 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.
    10. Favero, Filippo & Grossi, Luigi, 2023. "Analysis of individual natural gas consumption and price elasticity: Evidence from billing data in Italy," Energy Economics, Elsevier, vol. 118(C).
    11. Burke, Paul J. & Yang, Hewen, 2016. "The price and income elasticities of natural gas demand: International evidence," Energy Economics, Elsevier, vol. 59(C), pages 466-474.
    12. Gautam, Tej K. & Paudel, Krishna P., 2018. "The demand for natural gas in the Northeastern United States," Energy, Elsevier, vol. 158(C), pages 890-898.
    13. Woo, C.K. & Shiu, A. & Liu, Y. & Luo, X. & Zarnikau, J., 2018. "Consumption effects of an electricity decarbonization policy: Hong Kong," Energy, Elsevier, vol. 144(C), pages 887-902.
    14. Li, Raymond & Woo, Chi-Keung & Cox, Kevin, 2021. "How price-responsive is residential retail electricity demand in the US?," Energy, Elsevier, vol. 232(C).
    15. Gautam, Tej K. & Paudel, Krishna P., 2018. "Estimating sectoral demands for electricity using the pooled mean group method," Applied Energy, Elsevier, vol. 231(C), pages 54-67.
    16. Jean Gaston Tamba & Salom Ndjakomo Essiane & Emmanuel Flavian Sapnken & Francis Djanna Koffi & Jean Luc Nsouand l & Bozidar Soldo & Donatien Njomo, 2018. "Forecasting Natural Gas: A Literature Survey," International Journal of Energy Economics and Policy, Econjournals, vol. 8(3), pages 216-249.
    17. Liddle, Brantley & Huntington, Hillard, 2021. "How prices, income, and weather shape household electricity demand in high-income and middle-income countries," Energy Economics, Elsevier, vol. 95(C).
    18. Liddle, Brantley & Huntington, Hillard, 2020. "‘On the Road Again’: A 118 country panel analysis of gasoline and diesel demand," Transportation Research Part A: Policy and Practice, Elsevier, vol. 142(C), pages 151-167.
    19. 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.
    20. Ishmael Ackah, 2014. "Determinants of natural gas demand in Ghana," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 38(3), pages 272-295, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:15:y:2022:i:12:p:4231-:d:834474. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.