Natural Gas in Iran Compared to Prices Resulting from Implementation of Iran,s Subsidies Removal Policy (Dynamic Panel Data and Boiteux- Ramsey Pricing Model Approaches)

In this paper we use dynamic panel data methodology to estimate income and price elasticities of demand for gas in the four Iranian climatic regions as delineated by the National Iranian Gas Company (NIGC). Our results indicate a Cobb-Douglas production function where the sum of coefficients is higher than one, indicating monopolistic behavior by NIGC. We calculate the total cost of gas treatment and transmission using factors obtained from the Cobb-Douglas function. The study then proceeds to develop a Boiteux–Ramsey pricing model. Our estimated prices ndicate that the increase in gas prices observed up to 2014 are consistent with optinal Boiteux–Ramsey prices that produce an internal rate of return in the range of 17% to 25%. We note than any increase beyond this range would lead to welfare losses for natural gas consumers.