Price Responsiveness of Commercial Demand for Natural Gas in the US

To estimate price responsiveness of commercial demand for natural gas in the US, our panel data analysis uses five parametric specifications and monthly data for the lower 48 states in 1991-2020, finding (1) the statistically significant ( p -value ≤ 0.05) static own-price elasticity estimates are -0.137 to -0.245, short-run -0.152 to -0.261 and long-run -0.281 to -0.463; (2) these estimates varies by elasticity type, sample period, parametric specification, treatment of cross-section dependence (CD), and assumption of partial adjustment; (3) erroneously ignoring the highly significant ( p -value < 0.01) CD shrinks these elasticity estimates; (4) these elasticity estimates vary by season and region and their small size has been slowly declining over time; and (5) commercial natural gas shortage costs decline with the size of own-price elasticity estimates. The policy implications of these findings are: (a) price-induced conservation’s foreword looking effect on the US commercial natural gas demand is likely negligible, justifying continuation of standards for energy efficiency and CO 2 emissions and DSM programs for deep decarbonization; and (b) reducing an economy’s aggregate natural gas shortage cost may use critical peak pricing and/or forward contracts for firm and non-firm services.

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