Energy Pricing and Regulation: Implications of Oil Pricing On Demand and National Output

Abstract

This study examines the effect of gas pricing and gas demand on National output (GDP). The interactions among gas demand, gas price and GDP were investigated using the structural vector auto-regressive (SVAR) model. Time series monthly data were collected from 1996 -2019 on gas demand, gas supply, gas retail price, petrol retail price and GDP. The result indicated that gas
price has a significant impact on gas demand and gas demand also determines gas pricing; gas demand has a significant impact on GDP. Furthermore the impulse response and variance decomposition all showed that gas demand contributed most to the variations and shocks in GDP compared to the other variables under study. Also petroleum retail price significantly affect Gas
Demand positively, indicating that the higher the price of petrol the higher the gas demand as consumers will substitute gas for petroleum product. Finally, the causality testindicated bidirectional causality between GDP and Gas demand, bi-directional causality between gas price and gas demand and unidirectional causality from gas price to GDP