US Industrial Natural Gas Usage Falls Unexpectedly

U.S. manufacturers have not soaked up as much excess shale gas in the first half of 2015 as expected, but the shortfall may be an anomaly as a Gulf Coast manufacturing boom is poised to insulate the sector from seasonal demand fluctuations.

 

Average industrial demand for gas in 2015 was expected to increase nearly 4 percent over 2014, according to federal energy forecasts. But almost halfway through the year, it has eased about 1 percent to 21.7 billion cubic feet per day from 22 bcfd a year earlier, according to Thomson Reuters Analytics.

 

The primary reason for the decline was a milder winter this year than last year's brutal cold in the heavily industrialized U.S. Midwest and Gulf Coast.

 

"The industrial sector has become more temperature-sensitive over the years, so it's not surprising industrial demand was a little disappointing this winter," said Kyle Cooper, managing director of research at energy consultancy IAF Advisors in Houston.

 

Experts, however, expect the industrial sector to become less weather-sensitive as more manufacturing facilities enter service along the Gulf Coast, where heating is in less demand than in the Midwest.

 

Power generators and manufacturing companies will consume most of the gas in the United States over the next 25 years, according to the U.S. Energy Information Administration. So far this year, however, only the power sector had gobbled up its share of near-record output from shale fields.

 

Power generators accounted for 33 percent of U.S. gas consumption, burning on average 23.9 bcfd so far in 2015. That compared with 20.1 bcfd a year earlier and a 10-year average of 19.0 bcfd.

 

With the retirement of dozens of U.S. coal plants for economic and environmental reasons, power generators used near-record amounts of gas this year because the fuel was relatively cheap.

 

Futures at the Henry Hub benchmark supply point in Louisiana averaged $2.77 per million British thermal units so far this year, the lowest since 2012. That compared with $4.66 per mmBtu for the same time in 2014.

 

And the market expects prices to remain low for years as shale gas output grows, with futures trading below $4 through 2022.

 

Plentiful and affordable gas supplies from shale plays have transformed the United States from one of the world's highest-cost producers 10 years ago to among the lowest-cost today.

 

Chemical companies alone expect to spend more than $100 billion to build or expand more than 200 U.S. projects and create more than 300,000 jobs by 2023, according to the American Chemistry Council lobbying group.

 

"The boom in industrial demand will not take off until 2017 to 2020, when many new manufacturing facilities, especially chemical plants, enter service," said Gregory Shuttlesworth, executive director of natural gas at consultancy PIRA Energy Group in New York.

 

Experts said they did not expect manufacturers to dominate the U.S. gas market the way they once did, however.

 

"The industrial sector will soon get back to the same volume of gas it used in 2000," IAF Advisors' Cooper said, "but I doubt we'll ever see manufacturing back to the same percentage of total gas used 15 years ago."

 

The EIA forecast gas used by industrial companies would rise to about 22.5 bcfd in 2016, the first time it would top the 22.3 bcfd level set in 2000.

 

In the mid 2000s, many gas-intensive U.S. companies fled for lower cost markets after gas futures jumped above $10 per mmBtu in 2000 and then to an all-time high past $15 in 2005 after Hurricanes Katrina and Rita devastated the Gulf Coast.

 

The EIA said it expected U.S. industrial companies to continue to consume about 30 percent of the nation's gas over the next 25 years, compared with more than 35 percent 15 years ago.