Natural gas demand in the European household sector

This paper analyzes the residential natural gas demand per capita in 12 European countries using a dynamic loglinear demand model, which allows for country-specific elasticity estimates in the short and long run. The explanatory variables included lagged demand per capita, heating degree days index, real prices of natural gas, light fuel oil, electricity, and real private income per capita. The short-run own-price and income elasticity tend to be very inelastic, but with greater long-run responsiveness. By splitting the data set into two time periods, an increase in the own-price elasticities was detected for the European residential natural gas demand market as a whole. We have provided support for employing a heterogeneous estimator such as the shrinkage estimator. But the empirical results also motivate a further scrutiny of its properties.