The Economic Value of Residential Natural Gas Consumption: The Case of Korea

Abstract

Natural gas (NG) is the basic building block of economic development and constitutes one of the vital infrastructural inputs in socioeconomic development. The demand for NG has been increasing due to extensive urbanization, industrialization, and a rise in the standard of living, as is the case with residential electricity consumption in Seoul, Korea. This article attempts to estimate the consumer surplus and the economic value of the residential consumption of NG in Seoul to assist in decision-making in NG management. The estimated consumer surplus represents the value of the area under the demand curve, above the actual price that is paid for residential NG consumption. The estimated annual consumer surplus and economic value amount is KRW 3,680.8 and 6,882.6 billion (USD 2.83 and 5.29 billion), respectively. The estimates per cubic meter were KRW 758.6 (USD 0.58) and KRW 1,418.5 (USD 1.09), respectively, which imply that the consumer surplus and the economic value of residential NG consumption significantly outweigh the price of NG in 2008 of KRW 659.9 (USD 0.51) per cubic meter.