The Price Elasticity of Natural Gas Demand of Small Consumers in Germany during the Energy Crisis 2022

Abstract

Understanding how consumers respond to turbulent market conditions is crucial for planning security of natural gas supply. This paper estimates the price elasticity of demand of small consumers in Germany in the period with both high price fluctuations and a fear of natural gas shortage in the aftermath of the Russian invasion of Ukraine. Using granular data between 2018 and 2023, we estimate an Auto Regressive Distributed Lag (ARDL) time series cointegrating model. We find a price elasticity of demand for natural gas of -0.01 for wholesale prices and -0.04 for retail prices. Additionally, we quantify the effects of weather conditions and public awareness on the energy crisis. The results suggest i) that extreme price changes would be required to trigger short-term demand adjustments, and ii) demonstrate the importance of public attention on the crisis situation.