Estimation Natural Gas Demand Function in Provinces of Tehran and Esfahan (with Price Decomposition and Dynamic Panel Method)

In this paper, we survey provinces of Tehran and Esfahan which have the most volume of gas consumption in Iran. We estimate natural gas demand function of these two provinces in industry sector at 2000-2012 with dynamic panel method and price decomposition. Our hypothesis is that gas price has asymmetric effect on it's demand. Our estimation results reveal that short run price and output elasticities are less than long run and income elasticity of natural gas in short run and long run are high, because energy consumption in these provinces are more than international standards. Results reveal that natural gas price has asymmetric effect on natural gas in two provinces, elasticity of demand to increasing price is more than decreasing prices and lag of quantity of demand has high effect on current natural gas demand.