Modeling and forecasting natural gas demand in Bangladesh

Natural gas is the major indigenous source of energy in Bangladesh and accounts for almost one-half of all primary energy used in the country. Per capita and total energy use in Bangladesh is still very small, and it is important to understand how energy, and natural gas demand will evolve in the future. We develop a dynamic econometric model to understand the natural gas demand in Bangladesh, both in the national level, and also for a few sub-sectors. Our demand model shows large long run income elasticity – around 1.5 – for aggregate demand for natural gas. Forecasts into the future also show a larger demand in the future than predicted by various national and multilateral organizations. Even then, it is possible that our forecasts could still be at the lower end of the future energy demand. Price response was statistically not different from zero, indicating that prices are possibly too low and that there is a large suppressed demand for natural gas in the country. ► Natural gas demand is modeled using dynamic econometric methods, first of its kind in Bangladesh. ► Income elasticity for aggregate natural gas demand in Bangladesh is large—around 1.5. ► Demand is price insensitive, indicating too low prices and/or presence of large suppressed demand. ► Demand forecasts reveal large divergence from previous estimates, which is important for planning. ► Attempts to model demand for end-use sectors were successful only for the industrial sector.