U.S. industrial natural gas demand shifted last July from growth of 0.4 Bcf/d year on year (y/y) to a decline in December of 2 Bcf/d y/y, which, holding all else constant, loosened supply and demand balances by 2.4 Bcf/d and drastically changed the price environment, Barclays Capital analysts reported last week.
However, gas demand as fuel has been on a steady decline for the past seven years, according to Barclays analysts James Crandell, Biliana Pehlivanova and Michael Zenker. The trio reviewed not only recent gas data but the Energy Information Administration's (EIA) preliminary estimates for the Manufacturing Energy Consumption Survey (MECS) fuel tables for 2006, which indicated that gas demand as fuel fell from 2002 to 2006 in all major consuming industrial sectors except for food.
The recently released EIA survey is conducted every four years, and the Barclays analysts said the data are not immediately comparable with overall industrial consumption numbers issued in the government agency's monthly Short-Term Energy Outlook reports. The EIA outlook issued last week found all key economic barometers for gas markets continuing to head south this year, with the exception of Gulf of Mexico gas output (see related story).
The MECS data reflect only trends in gas use as fuel -- not as feedstock.
"But still, the data do have implications for current trends in demand, as they indicate shifts in the relative weight of each industry's consumption," noted the Barclays analysts. Short-term trends aside, the use of gas as fuel within the industrial sector has moving down since 2002, they noted. For instance, the chemicals sector alone has lost 2.9 Bcf/d of gas demand, or 46%, from 2002 to 2006.
Just seven years ago, 90%, or 15.4 Bcf/d, of total industrial consumption of natural gas was for fuel and 10%, or 1.8 Bcf/d, was for feedstock, noted Crandell and his colleagues.
By 2006 gas fuel consumption by chemicals manufacturers fell 26%, or 1.1 Bcf/d, to 3.3 Bcf/d from 2002 levels, noted Crandell and his colleagues. "Along with others, the sector has suffered from a worsening of its competitiveness in the global market as natural gas prices in the U.S. more than doubled from an average of $3.37 [Mcf] in 2002 to $6.98 in 2006."
The primary metals sector also reduced its gas use as fuel in the four-year period, with consumption of gas down 0.5 Bcf/d. Demand fell in the petroleum and coal products dropped 5%, while demand in the paper sector was off 25%. The nonmetallic mineral products sector had a 27% cut in its gas fuel use.
Meanwhile, the food sector was the only major consumer of natural gas to show gains, with demand rising 0.1 Bcf/d, or 10%, from 2002 to 2006, according to the MECS.
In aggregate, the top six consuming sectors were responsible for 82% of fuel use of natural gas in 2002 and 81% in 2006, with consumption lower by 2.3 Bcf/d, the MECS data showed.
"Although consumption is still concentrated in the same industries, the shifts in the relative share of each industry in overall U.S. industrial demand were noticeable," wrote the Barclays analysts. "For instance, the chemicals sector lost 3% share over the reference period -- from 29% of total in 2002 to 26% of total in 2006, while food and petroleum and coal products were the largest gainers, with their shares up 3% from 2002 to 2006."
The MECS data also cover the consumption of power by the industrial sector, which has a secondary effect on gas demand, noted the Barclays team.
Industries reducing their power consumption the most between 2002 and 2006 were both related to the production of primary and fabricated metals, the data indicated. The primary metals sector fell the most in absolute terms, from 144 TWh in 2002 to 134 TWh in 2006, and share dropped to 16% from 17% of industrial power demand. Fabricated metals had a larger 12% decline, but in absolute terms the drop was half as large, the data showed.
Offsetting the decline in metals gas fuel use, some industries increased their gas fuel consumption over the four-year period, according to the data. "The increases in power consumption in the food, paper and transportation equipment sectors were enough to bring overall usage to flat, with each increasing on the order of 8-13%," noted the Barclays analysts.
"The preliminary MECS data release highlights the macro-level trends that are occurring in industrial natural gas and industrial power consumption, as well as changes in the relative importance of the performance of individual sectors for the overall health of U.S. gas and power demand," wrote Crandell and his team. "We note, however, that while this release covers 90% of industrial use for the two products, it is preliminary in nature, and the statistics on feedstock use of natural gas will add depth to the data."
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