Estimating Regional Short-Run and Long-Run Price Elasticities of Residential Natural Gas Demand in the U.S.

Abstract

Demand for natural gas use per residential customer has been declining since the 1980’s. Between 1980 and 2001, weather adjusted natural gas use per consumer in the US declined almost 1 percent on an annual basis. Since 2000 the decline for winter only use has accelerated, decreasing 13.1 percent between 2000 and 2006 for the companies analyzed in this paper.

To help Local Distribution Companies and Public Service Commissions predict future declines in use per customer natural gas demand, we estimate the price elasticity of natural gas demand by residential households using a sample of data that covers the recent period of large natural gas price increases. We find that the price elasticity of residential natural gas demand has been constant since the 1990s. We also estimate a 1% decline in use per customer induced by the natural turnover of old equipment that is independent of natural gas price increases.