Abstract:
Natural gas is frequently introduced as a “transitional fuel”. Because burning natural gas
emits less carbon dioxide emissions than burning either oil or coal. Additionally, the inter mittent nature of low-carbon electricity generation creates imperative for using natural gas
for power generation. The role of natural gas is currently under scrutiny as climate change
transforms into a climate crisis. Meanwhile, share of natural gas in the primary energy
consumption of Azerbaijan is 69%, while 94% of the country’s electricity is currently being
generated in natural gas-fired power plants. In this manner, this paper estimates income and
price elasticities of natural gas demand for the Azerbaijan case. In this study, various sets of
estimation techniques are utilized. By modeling natural gas demand with different estimation
methods, including Autoregressive Distributed Lagged Structural Time Series Modeling,
Dynamic Ordinary Least Squares Method, Fully Modified Ordinary Least Squares, Canonical
Cointegrating Regression, and General to Specific under Autometrics multi-path search
machine learning algorithm, we try to find if there is room for the country to export more. All
these utilized estimation methods confirmed the long-run income elasticity to be around 0.8,
while the long-run price elasticity is around −0.1. Both estimations provide insights in terms
of energy security and electricity security for policymakers during the implementation pro cess of climate, energy, and environmental policy. Findings of this study classify natural as a
necessity and normal good for the Azerbaijan case. The main policy implication of this study
is that policymakers must enable and facilitate the availability of close renewable substitutes
for residential and commercial customers. Estimated elasticities suggest that with rising
national income, demand for natural gas will keep increasing, and efficient consumption will
not be attainable with increasing prices. In the pursuit of export potential, findings suggest
that it is more relevant to free up natural gas allocated from power generation by substituting
it with renewable energy sources.