The Price and Income Elasticity of Demand for Natural Gas Consumption in Saudi Arabia

Abstract

Natural gas consumption in Saudi Arabia (KSA) has grown at an annual rate of approximately 7% as a result of population growth and other economic and non-economic factors. This study aims to estimate the short- and long-run price and income elasticities of natural gas demand in Saudi Arabia using time series data from 1990 to 2020, applying the Autoregressive Distributed lag Procedure (ARDL). Employ an Error-correction model to obtain estimates of adjustment speeds with long and short-run elasticities. The elasticity of demand for natural gas was calculated by including population growth as a control variable. The short-run dynamics evaluated indicate that the speed of adjustment is 70% annually, the long-run income and the price elasticities are 0.0002 and -2.09 respectively. The short-run income and price elasticities are 0.0002,  -1.17 respectively. This means that price changes have a greater impact on natural gas demand than changes in income in the short and long run. Population growth has contributed to the increase in natural gas consumption in Saudi Arabia in the short and long run. In general, based on the results, the trend of Saudi Arabia to increase the consumption of natural gas needs to maintain low prices, due to the high price elasticity of demand.