Modelling and forecasting the demand for natural gas in Pakistan

This study examines both the short and long-term dynamics of natural gas consumption in Pakistan through an econometric model, sector-specific income, price and cross price elasticities of natural gas demand are estimated over the period 1978-2011. The estimated income elasticities indicate that real GDP per capita exerts a larger impact on gas consumption as compared to its price. The price and cross price elasticities are relatively low, indicating consumers׳ indifference in Pakistan towards price escalation. They neither decrease gas consumption nor try to explore less expensive substitutes for natural gas. A validation of the estimated demand equations is performed, showing high degree of accuracy through tracking the historical data. In order to determine the future outlook of natural gas demand, sectoral equations are simulated as baseline. Both moderate and extreme demand scenarios are projected for the period 2012-2020. Ex-post simulation, resulting through baseline scenario, suggests that the power sector is more likely to occupy top position in terms of natural gas consumption. It is expected that the natural gas consumption would reach 734,062 MMCFT by 2020, followed by the transport sector (238,943 MMCFT); industrial sector (541,869 MMCFT); residential sector (304,821 MMCFT) and the commercial sector (72,784 MMCFT). Furthermore, simulation results based on moderate and extreme scenarios reveal that a deliberate increase in natural gas prices reduces per capita natural gas consumption significantly over the forecast time horizon (2012-2020). The findings of this study have significant implications with respect to energy conservation and economic development. Particularly, price and income elasticities have practical relevance for appropriate pricing and income policies. Additionally, forecast results can provide useful support for designing an appropriate infrastructure and investment plan with reference to gas market in future.