The Effect of Natural Gas Prices on Gas Consumption by Iranian Industries

Natural gas has an advantageous position compared to other energy carriers in policy making of energy consumption due to its many advantages, especially in terms of environmental indicators. In Iran, the industrial sector is considered as one of the important sectors of natural gas consumption. The main purpose of this paper is to investigate the relationship between natural gas prices and industries gas consumption during the period 1374-1393 in Iran. Natural gas consumption, price of electricity, price of natural gas and value added of industry were the variables of interest. By using a two-factor panel model, we estimated the natural gas price coefficients for various industries (according to the international standard industrial classification of all economic activities) separately. Empirical results show natural gas price coefficient is significant for all industries except the wood industry and wooden products. The coefficient of value added of industry is equal to 0.18, which indicates one percent increase in value added of industry leads to eighteen hundredths percent increase in natural gas consumption. Also, the positive coefficient of electricity price shows that electricity is considered as an alternative energy for the industries.