Quantifying Worldwide Demand Elasticities as a Policy Tool

About the Project 

KAPSARC is analyzing the shifting dynamics of the global gas markets. Global gas markets have turned upside down during the past five years: North America has emerged as a large potential future LNG exporter while gas demand growth has been slowing down as natural gas gets squeezed between coal and renewables. While the coming years will witness the fastest LNG export capacity expansion ever seen, many questions are raised on the next generation of LNG supply, the impact of low oil and gas prices on supply and demand patterns and how pricing and contractual structure may be affected by both the arrival of U.S. LNG on global gas markets and the desire of Asian buyers for cheaper gas

Key Points

This paper provides a comprehensive worldwide database of estimated elasticities for electricity and natural gas for households as a function of income, price, capital stocks and weather conditions.

• Emerging economies show lower price elasticities than advanced economies as a result of limited physical capital availability and lock in effect pertaining to energy consumption. 
• Hot weather has a higher impact on energy demand in emerging economies than in advanced ones, as a result of higher efficiency and diversified technologically-advanced equipment. 
• We find that the energy demand elasticity to capital stock is positive implying that the rebound effect prevails over the substitution effect when it comes to the deployment of capital stock technologies.
• For most countries, including former Soviet Union economies, natural gas is considered as an essential good while electricity is perceived, economically, as a luxury where its income elasticity is above unity