Determinants of Natural Gas Consumption in Europe: An Empirical Analysis

Abstract

Natural gas consumption is a significant issue in European countries due to the Russia-Ukraine war crisis. Natural gas is very important both for household and commercial purposes. The primary objective of this study is to investigate the relationship between natural gas consumption and its determinants. Panel data collected from Eurostat and World Bank publications, consisting of five European countries spanning from 2009 to 2022, were used for this study. Panel data analysis, like the panel unit root test, shows that the panel data variables are integrated into order 1. This indicates that the estimators are sufficient since the variables in the panel are stationary. Johansen Fisher's panel cointegration test shows that there is a long-run association between natural gas consumption and its determinants. The Hausman test specified a panel random effect regression model to run the analysis of this paper, and the model indicates that there is a significant relationship between natural gas consumption and its determinants. The Panel regression model further reveals natural gas prices have a negative significant impact on natural gas consumption, which suggests that the consumption of natural gas reduces with an increase in its price. This is the current situation in European countries now following the effect of the Russian-Ukraine war. Besides, correlation analysis was applied and shows a negative and significant relationship between natural gas consumption and natural gas demand. Following the outcome of this research paper, it will be very important for the United Nations and the European Union to swiftly apply a drastic and lasting solution approach to the current Russian-Ukraine war in order to prevent further untold damages that the war could cause to the economy of European Countries.