How Are Day-Ahead Prices Informative for Predicting the Next Day’s Consumption of Natural Gas? Evidence from France

34 Pages Posted: 16 May 2019

See all articles by Arthur Thomas

Arthur Thomas

IFP Energies Nouvelles; University of Nantes - LEMNA

Olivier Massol

IFP School - Center for Economics and Management; IFP Energies Nouvelles; City University London - Department of Economics

Benoît Sévi

University of Nantes

Date Written: May 15, 2019

Abstract

The purpose of this paper is to investigate whether the next day’s consumption of natural gas can be accurately forecast using a simple model that solely incorporates the information contained in dayahead market data. Hence, unlike standard models that use a number of meteorological variables, we only consider two predictors: the price of natural gas and the spark ratio measuring the relative price of electricity to gas. We develop a suitable modeling approach that captures the essential features of daily gas consumption and in particular the nonlinearities resulting from power dispatching. We use the case of France as an application as this is, as far as is known, the very first attempt to model and predict the country’s daily gas demand. Our results document the existence of a long-run relation between demand and spot prices and provide estimates of the own- and cross-price elasticities. We also provide evidence of the pivotal role of the spark ratio which is found to have an asymmetric and highly nonlinear impact on demand variations. Lastly, we show that our simple model is sufficient to generate predictions that are considerably more accurate than the forecasts published by infrastructure operators.

Keywords: natural gas markets, day-ahead prices, demand price elasticity, load forecasting

JEL Classification: L95; Q41; Q47; C22; C53

Suggested Citation

Thomas, Arthur and Massol, Olivier and Sévi, Benoît, How Are Day-Ahead Prices Informative for Predicting the Next Day’s Consumption of Natural Gas? Evidence from France (May 15, 2019). USAEE Working Paper No. 19-407. Available at SSRN: https://ssrn.com/abstract=3388794 or http://dx.doi.org/10.2139/ssrn.3388794

Arthur Thomas

IFP Energies Nouvelles ( email )

1 & 4, avenue de Bois-Préau
Rueil-Malmaison
Paris, 92852
France

University of Nantes - LEMNA ( email )

Nantes, 44000
France

Olivier Massol (Contact Author)

IFP School - Center for Economics and Management ( email )

228-232 avenue Napoléon Bonaparte
Rueil-Malmaison, 92852
France

HOME PAGE: http://www.ifp-school.com/Olivier-Massol---/250

IFP Energies Nouvelles ( email )

1 à 4 avenue de Bois Préau
Rueil-Malmaison, 92852
France

HOME PAGE: http://www.ifpen.fr

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

HOME PAGE: http://www.city.ac.uk/arts-social-sciences/academic-staff-profiles/dr.-olivier-massol

Benoît Sévi

University of Nantes ( email )

1, quai de Tourville BP
Nantes Cedex 1
Nantes, 44313
France

HOME PAGE: http://www.iemniae.univ-nantes.fr/sevi-b/0/fiche___annuaireksup/

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