Income and Price Elasticities of Natural Gas Demand in Pakistan a Disaggregated Analysis

Abstract

The study estimates income and price elasticities of natural gas demand for industrial, commercial, and residential sectors of Pakistan. The study also examines the relationship between natural gas consumption and underlying energy demand trend (UEDT) which follows a stochastic process that is captured by a structural time series modeling approach to the annual data for the period 1972-2019. Empirical estimates show that, the real price of gas, economic activity and the UEDT determine the shape of natural gas demand in Pakistan. The upward slopes of the UEDT in all three sectors indicate that exogenous factors have dominated the energy efficiency improvements in the country due to the technical progress. The more substantial effect of exogenous factors, represented by the estimated UEDT, than the real price of gas in all sectors suggests that policies to curtail natural gas demand through energy efficient appliances will be more useful than will price-induced policies.

Keywords: Natural Gas, Elasticity, Energy, UEDT, Technology