OECD-Europe Natural Gas Demand: A Structural Time Series Analysis

Mr Zafer Dilaver, Surrey Energy Economics Centre, University of Surrey

This research investigates the relationship between OECD-Europe natural gas consumption, GDP and natural gas prices in order to forecast future European natural gas demand.  To achieve this, a natural gas demand function for Europe is estimated by applying the structural time series technique to annual data over the period 1978 to 2007. This technique, uncovers the underlying energy demand trend for the OECD-Europe arguably should be taken into account in future Europe energy policy decisions. The results suggest that GDP, natural gas prices and an underlying energy demand trend all have a significant role to play in driving European natural gas consumption. Consequently, they should all be incorporated when modelling European natural gas demand. It is therefore found that income elasticity and price elasticities are 0.95 and -0.18 respectively, with an increasing (till 1996) and generally decreasing (since 1996) underlying energy demand trend. Based on the estimated equation, and different forecast assumptions, this study predicts that the European natural gas  consumption will be somewhere between 272,239 and 407,356 ktoe by 2020.

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