Location of Repository

Construction of a fuel demand function portraying interfuel substitution, a system dynamics approach

By Ibrahim Abada, Vincent Briat and Olivier Massol


Most of the recent numerical market equilibrium models of natural gas markets use imperfect competition assumptions. These models are typically embedded with an oversimplified representation of the demand side, usually a single-variable affine function, that does not capture any dynamic adjustment to past prices. To remedy this, we report an effort to construct an enhanced functional specification using the system dynamics-based model of Moxnes (1987, 1990). Thanks to a vintage representation of capital stock, this putty-clay model captures the effect of both past and current energy prices on fuel consumption. Using a re-calibrated version of this model, we first confirm the pertinence of this modeling framework to represent interfuel substitutions at different fuel prices in the industrial sector. Building on these findings, a dynamic functional specification of the demand function for natural gas is then proposed and calibrated.

OAI identifier:

Suggested articles



  1. (2010). A Generalized Nash-Cournot Model for the North-Western European Natural Gas markets with a Fuel Substitution Demand Function: The GaMMES Model.
  2. (1990). A Petroleum life cycle model for the U.S. with endogenous technology, exploration, recovery, and demand.
  3. (2008). A strategic model of European gas supply (GASMOD).
  4. (1992). A system dynamics model for national energy policy planning.
  5. Agency, 2010a, World energy balances. IEA World Energy Statistics and Balances.
  6. (1992). An analysis of the cost effectiveness of US energy policies to mitigate global warming.
  7. (1984). Appropriate summary statistics for evaluating the historical fit of system dynamics models.
  8. (2000). Business Dynamics: Systems Thinking and Modeling for a Complex World. Irwin McGraw-Hill,
  9. (2009). Continental European Long-Term Gas Contracts: is a transition away from oil product-linked pricing inevitable and imminent?
  10. (2010). Cooperation among liquefied natural gas suppliers: Is rationalization the sole objective?
  11. (2003). Dynamic translog and linear logit models: a factor demand analysis of interfuel substitution in US industrial energy demand.
  12. (2009). Dynamics of the UK natural gas industry: System dynamics modeling and long-term energy policy analysis.
  13. (1995). Effects of liberalizing the natural gas market in Western Europe.
  14. (1977). Electric Utility Fuel Choice Behavior in the United States.
  15. (2010). European Natural Gas. Demand, Supply and Pricing. Oxford Institute for Energy Studies.
  16. (1997). Feedback complexity in integrated climate-economy models. Doctoral Thesis Submitted to the Alfred P. Sloan School of Management.
  17. (2008). Future evolution of the liberalised European gas market: Simulation results with a dynamic model.
  18. (2008). Gas models and three difficult objectives. ECORE Discussion papers 2008/13. Louvain-la-Neuve.
  19. (2010). How to do structural validity of a system dynamics type simulation model: The case of an energy policy model.
  20. (1999). Interfuel competition in the industrial sector of seven OECD countries.
  21. (1990). Interfuel substitution in OECD-European electricity production.
  22. (2007). Is There A Rationale for the Continuing Link to Oil Product Prices in
  23. (2003). Model calibration as a testing strategy for system dynamics models.
  24. (2005). Modelling for Policy Assessment in the Natural Gas Industry.
  25. (1989). Multiple tests for validation of system dynamics type of simulation models.
  26. (1987). Natural gas markets and contracts.
  27. (2011). Regulation and development of the Argentinean gas market.
  28. (2011). Security of supply and retail competition in the European gas market. Some model-based insights. Energy Policy,
  29. (2007). Strategic Modelling and Business Dynamics.
  30. (1997). System Dynamics and the Electric Power Industry.
  31. (1977). The Demand for Energy in Canadian Manufacturing.
  32. (1987). The dynamics of Interfuel Substitution in the OECD-Europe Industrial Sector,
  33. (1992). The econometric analysis of energy demand: perspectives of a practitioner.
  34. (1981). The Energy Transition and the Economy: A System Dynamics Approach. Doctoral Thesis Submitted to the Alfred P. Sloan School of Management.
  35. (1987). The European network gas market: Degrees of market power on the selling side, in:
  36. (1997). The Ideas Model and Its Use in Developing the US Climate Change Action Plan,
  37. (1979). The Structure of World Energy Demand.
  38. (1988). The Theory of Industrial Organization.
  39. (1984). The Use of Linear Logit Models for Dynamic Input Demand Systems.
  40. (2010). The World Gas Model: A multi-period mixed complementarity model for the global natural gas market.
  41. (2004). Trading in the downstream European gas market: a successive oligopoly approach.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.