Forecasting national gas demand by modeling fuel purchasing decisions for end-use customer groups

Rapidly rising domestic natural gas prices and the development of higher-priced synthetic fuels have made marketability a key issue for the natural gas industry, both for distribution companies and for producers and interstate pipelines in making reserve acquisition decisions. This paper describes the methodology underlying a detailed model that characterizes the interfuel competition between gas, oil, coal, purchased steam, and electricity. The model forecasts the quantity of various fuels demanded in a utility company's service territory by considering the fuel-purchasing decisions of customer groups. Each market is segmented into customer groups according to equipment types and operating characteristics. For example, residential customers are divided according to their heating system (forced air systems, gravity systems, boilers, and heat pumps). Commercial customers are divided by Standard Industrials Classification (SIC) codes such as restaurants, laundries, schools, and hospitals. The industrial customers are also divided by SIC codes, and further subdivided by major installations. In some cases, both commercial and industrial customers are further broken down by actual device. For example, large boilers at a major industrial power plant form a separate market segment. Consumers switch from one fuel type to another when it becomes economically desirable to do so, based on a net present value calculation that takes into account the following factors: