The dynamics of substitution elongations between fossil fuel carriers in Iran: Policy guidelines for gas consumption in the industrial sector on the horizon 2025 using Kalman filter approach

Document Type : Research Paper


1 Faculty of Economics and Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran

2 Allameh Tabatabaei University, Tehran, Iran


The present paper explains the dynamics of substitution tensions between fossil energy carriers in Iran: Policy guidelines for gas consumption in the industrial sector on the horizon 2025 using the space model and Kalman filter approach for the years 2006-2019 in the form of quarterly data. Based on the model estimation results; Price and revenue elasticity of kerosene, gasoline, gas oil, furnace oil and liquefied petroleum gas -0.14, -0.07, -0.46, -0.10 and -0.24 and 0.48, / 06 0, 0.17, 0.48 and 0.01. Because the price elasticity of all four products is less than one, increasing the prices increases manufacturers' costs, and increasing costs slow down the pace of gas replacement. There is a direct relationship between sales tariffs and natural gas demand, which means that with a one percent increase in sales tariffs and liberalization of kerosene, gasoline, gas oil, fuel oil and liquefied petroleum gas prices; Gas demand respectively; 0.46, 0.34, 0.004, 0.17 and 0.11 will increase. As a result, natural gas is a stretchable commodity in the long run. Also, the highest price elasticity and substitution elasticity among petroleum products with natural gas up to the horizon of 1404, respectively; related to gas oil, furnace oil, kerosene, gasoline and liquefied petroleum gas. In other words, as a result of the implementation of the above policies, the share of crude oil in the initial energy supply has decreased from 89.5 to 42.5 percent. Furthermore, the share of natural gas has increased from 8.5 to 63.5 percent. As a result, the country is currently far from the goals set out in the document.


[1] S. Alarenan, A. Gasim and L.C. Hunt, Modelling industrial energy demand in Saudi Arabia, Energy Econ. 85
(2020), 104554.
[2] A.B. Abdullahi, Modeling petroleum product demand in Nnigeria using structural time series model (STSM)
approach, Int. J. Energy Econ. Policy 4 (2014), no. 3, 427–441.
[3] H. Aras and N. Aras, Forecasting residential natural gas demand, Energy Sources 26 (2004), no. 5, 463–472.
[4] J.F. Commandeur and S.J. Koopman, An Introduction to State Space Time Series Analysis, Oxford University
Press, 2007.
[5] L.C. Hunt, G. Judge and Y. Ninomiya, Underlying trends and seasonality in UK energy demand: A sectoral
analysis, Energy Econ. 25 (2007), 93–118.
[6] H. Hashemi, T. Mohammadi, F. Khalili and F. Asgari, Estimation of gasoline demand in Iran during the period
1995 to 2017 using the state space model and the implications for price liberalization, J. Appl. Theor. Econ. 7
(2020), no. 1, 1–28.
[7] M.A. Kaboudan and Q.W. Liu, Forecasting quarterly US demand for natural gas, Inf. Technol. Econ. Manag. 2
(2004), no. 1.
[8] C. Lim, Estimating residential and industrial city gas demand function in the Republic of Korea—A Kalman filter
application, Sustainability 11 (2019), no. 5, 1363.
[9] T. Mohammadi, A. Hamid and Gh. Dizaj Khalil, The effect of natural gas price liberalization on the resilience of
Iran natural gas distribution system, J. Commerce 24 (2020), no. 95, 129–168.
[10] G. Ozdemir, E. Aydemir, M.O. Olgun and Z. Mulbay, Forecasting of Turkey natural gas demand using a hybrid
algorithm, Energy Sources, Part B: Econ. Plann. Policy 11 (2016), no. 4, 295–302.
[11] H. Sarak and A. Satman, The degree-day method to estimate the residential heating natural gas consumption in
Turkey: A case study, Energy 28 (2003), 929–939.
[12] W. Xiong, L. Yan, T. Wang and Y. Gao, Substitution effect of natural gas and the energy consumption structure
transition in China, Sustainability, 12 (2020), no. 19, 7853, .
[13] Y. Yu, X. Zheng and Y. Han, On the demand for natural gas in urban China, Energy Policy 70 (2014), 57–63.
[14] Y. Zhang, Q. Ji and Y. Fan, The price and income elasticity of China natural gas demand: A multi sectoral
perspective, Energy Policy, 113 (2018), 332–341.
Volume 13, Issue 2
July 2022
Pages 191-203
  • Receive Date: 26 November 2021
  • Revise Date: 27 December 2021
  • Accept Date: 26 January 2022