By July 7, 2015 Read More →

American industrial demand for natural gas rising

Industry will account for almost one-third of American natural gas demand

Natural gas for power generation and LNG exports may dominate water cooler discussions in the energy sector, but analysts with consultancy Black & Veatch say industrial demand shouldn’t be ignored.

natural gas

Black & Veatch projects natural gas prices to be under $5 per million/Btu out to 2025.

Michael Dickson and Denny Yeung, writing in the July issue of Energy Strategies Report, say the potential of industrial consumption to be a significant competitive driver of natural gas demand over the next five or 10 years has been understated as observers concentrated on the Clean Power Plan and the coming market for liquefied natural gas exports.

“Industrial gas demand could gain market share, with manufacturers taking advantage of the abundance of North American supply and the expanding infrastructure, just as potential LNG exporters view their market opportunities,” the write.

Dickson and Yeung argue that the impact on the manufacturing sector has been so great that AlixPartners, in their Manufacturing-Sourcing Outlook, forecasts that “U.S. merchandise exports will be on par with China on a landed cost basis in 2015, closing the 15 per cent cost gap that has existed since 2009.”

Low and stable prices for natural gas and natural gas liquids have led to an increase in proposals to construct methanol and ammonia plants near shale plays (Figure 1), especially along the Gulf Coast, with its concentration of petrochemical and fertilizer manufacturing, say the analysts, whose firm expects that these future industrial loads will require new infrastructure and will compete with other natural gas customers, such as power generators and LNG exporters, for pipeline capacity.

“The U.S. Energy Information Administration (EIA) recently forecast in the Annual Energy Outlook 2015 that industrial sector natural gas consumption will grow at an annual rate of 0.5 percent through 2020 and is set to outpace the residential, commercial and electric power sectors,” write Dickson and Yeung.

The authors say that ease of pipeline and processing construction and abundance of supply makes the U.S. Gulf Coast attractive to industrial consumers for two reasons:

First, the reversal in the legacy south-to-north natural gas pipeline flows as a result of the growth in Marcellus and Utica shale production has created incentives for producers to find a long-term market for their output. Industrial loads can be ideal for producers seeking high load-factor markets that have limited seasonality.

Second, the Gulf Coast interstate and intrastate pipeline networks offer numerous options for gas supply and transportation to a potential industrial load, increasing competition among pipelines, producers and marketers to serve large industrial loads.

“As a result, industrial gas demand is seen increasing its market share during the period to 31 per cent from 28.6 per cent in 2014. The methanol and fertilizer industries, the most gas-intensive industrial end-users, are expected to be the primary drivers of this growth.”

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