How are Day-ahead Prices Informative for Predicting the Next Day's Consumption of Natural Gas? Evidence from France

Arthur Thomas (), Olivier Massol and Benoît Sévi ()
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Arthur Thomas: IFPEN - IFP Energies nouvelles, LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université
Benoît Sévi: LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université

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Abstract: The purpose of this paper is to investigate whether the next day's consumption of natural gas can be accurately forecast using a simple model that solely incorporates the information contained in dayahead market data. Hence, unlike standard models that use a number of meteorological variables, we only consider two predictors: the price of natural gas and the spark ratio measuring the relative price of electricity to gas. We develop a suitable modeling approach that captures the essential features of daily gas consumption and in particular the nonlinearities resulting from power dispatching. We use the case of France as an application as this is, as far as is known, the very first attempt to model and predict the country's daily gas demand. Our results document the existence of a long-run relation between demand and spot prices and provide estimates of the own- and cross-price elasticities. We also provide evidence of the pivotal role of the spark ratio which is found to have an asymmetric and highly nonlinear impact on demand variations. Lastly, we show that our simple model is sufficient to generate predictions that are considerably more accurate than the forecasts published by infrastructure operators.

Keywords: Natural Gas Markets; Day-Ahead Prices; Demand Price Elasticity; Load Forecasting (search for similar items in EconPapers)
Date: 2022-09-01
New Economics Papers: this item is included in nep-ban, nep-ene, nep-for and nep-reg
Note: View the original document on HAL open archive server: https://ifp.hal.science/hal-03521140
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Citations: View citations in EconPapers (2)

Published in Energy Journal, 2022, 43 (5), pp.67-91. ⟨10.5547/01956574.43.5.atho⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03521140

DOI: 10.5547/01956574.43.5.atho

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