Electricity Sector Demand for Natural Gas in the United States

Abstract:

We examine determinants of the natural gas share in power generation for the NERC regions in the US. Our results indicate that plant and grid-level fuel-switching, technology in generation, installed capacity and weather all affect the natural gas share of energy input into power generation. Furthermore, we argue that fuel-switching is likely an important demand-side factor in establishing a long run relationship between the prices of petroleum products and natural gas. We estimate two specifications – a translog specification for expenditure share and a double logarithmic transformation of gas-fired capacity utilization – because our analysis calls into question the validity of the translog specification for analyzing fuel shares in the power generation sector.