German demand for natural gas fell significantly in response to energy crisis

Russia’s continued reduction in its supply of natural gas to Europe since early 2021 has threatened the bloc’s energy security and driven up wholesale prices of the resource tenfold compared to pre-crisis levels. In a working paper titled “Gas demand in times of crisis” published with the Leibniz Information Centre for Economics, Hertie School Centre for Sustainability researchers Oliver Ruhnau, Clemens Stiewe, Jarusch Müßel and Lion Hirth study the demand for natural gas in Germany in reaction to surging prices and plummeting supplies.

Using data from January 2017 to April 2022 from Germany, the largest consumer of Russian natural gas, the researchers find that overall demand decreased significantly in response to the current energy crisis. Industry demand reduced by about 11% since the crisis began in 2021 and individual household demand by 6% since March 2022, only after Russia’s invasion of Ukraine. These findings are based on a carefully designed method considering many factors, PhD researcher Oliver Ruhnau explains: “To disentangle the price response of end consumers from other effects, we control for the impact of seasonality, temperature, economic activity, and the power sector.” Other considerations in the study include the use of space heaters and the development of gas-fired electricity generation.

This decrease in demand is not enough, however, to close the looming supply gap for the coming winter, and energy subsidies actually drive up gas consumption and prices, according to Lion Hirth, Assistant Professor of Governance and Digitalisation and Energy Policy. “The results demonstrate that firms substantially respond to gas market prices,” he says. “Our study shows that prices are an effective means to incentivise such a reduction and should, therefore, not be diluted by policy interventions. To support vulnerable consumers, policy makers should focus on direct payments instead of price-based subsidies.”

Read the full study here.

Read the press release (in German) here.

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