The demand for natural gas, electricity and heating oil in the United States

In this paper the residential, commercial, and industrial consumption of natural gas, electricity, and heating oil in the Bureau of the Census regions and subregions is studied with an errorcomponents model consisting of nine equations. The nine equations are estimated simultaneously by the Avery's error components and seemingly unrelated regressions (EC-SUR) procedure as well as individually by the ordinary least-squares and error components methods. The EC-SUR estimates of short-run and long-run price and income elasticities and adjustment speeds are analyzed. The main results include: (i) the residential, commercial, or industrial consumption of a fuel good is price- and income-inelastic in the short run and is elastic or becomes more elastic in the long run; (ii) the speed of adjustment differs from a fuel good to another for different uses in different (sub)regions; (iii) the patterns of the demand for a fuel good are not uniform within or across (sub)regions; (iv) there are differences in the behavior of energy consumption because of geographical locations as well as similarities because of geographical conditions; (v) the cross-price elasticities imply the existence of substitutability and complementarity among the three types of fuel goods; (vi) in the long run, the demand for a fuel commodity in different consuming sectors exhibits a relatively large degree of volatility in response to changes in its own price, the prices of other fuel goods, and income; and (vii) considering the nation as a whole, it is found that residential consumption of natural gas, electricity and heating oil is more elastic with respect to price than to income in the short and long run; that residential, commercial and industrial demand for electricity are income-inelastic in the short and long run, but commercial and industrial use of natural gas and electricity are more sensitive to both price and income than residential demand in the short and long run, and that the speed of adjustment for heating oil is relatively slower than for natural gas and electricity. These findings bear important implications for national energy policies.