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

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.
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https://hal-ifp.archives-ouvertes.fr/hal-03521140
Contributor : Catherine Belli Connect in order to contact the contributor
Submitted on : Tuesday, January 11, 2022 - 2:01:59 PM
Last modification on : Friday, December 2, 2022 - 3:41:12 PM
Long-term archiving on: : Tuesday, April 12, 2022 - 7:09:04 PM

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Arthur Thomas, Olivier Massol, Benoît Sévi. How are Day-ahead Prices Informative for Predicting the Next Day's Consumption of Natural Gas? Evidence from France. Energy Journal, 2022, 43 (5), pp.67-91. ⟨10.5547/01956574.43.5.atho⟩. ⟨hal-03521140⟩

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