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Analysts: Migration Points Way to Demand Growth

In whatever direction populations migrate, increased demand for electricity is almost sure to follow, and usually in step not far behind is increased demand for natural gas, according to analysts at Barclays Capital.

"While there is not a one-for-one link between population changes and power consumption, owing to energy intensity differences of the regions and the rise or fall of industrial loads, population change is a surprisingly strong explanatory variable," the analysts said in a note published last week. "Size matters when considering consumption of gas, and those areas with the greatest number of new residents generally featured the largest gains in power consumption."

The analysts point to the Southeast, where brisk power demand growth is tied to migration to the region. "While the Rockies/Southwest has grown rapidly in percentage terms, it has less of an impact on power demand given the small population base," they said. And on the West Coast, the Pacific region sees a more modest impact on power demand from population growth due to its relatively modest dependence on air conditioning.

The analysts suggested that trends in population growth and migration that have been in play since 1990 aren't likely to disappear. "We note that regions such as Florida have seen a stall in population growth. Yet this may be temporary. Job growth continues in Texas," they said. "A recovery of the shift of population growth to the southern tier of the country suggests that those regions would consequently be the core of gas demand growth."

The analysts also noted the shift in the sources of gas supply, namely to unconventional resource plays. Traditionally, gas production growth was mostly west of the Mississippi, which helped to spur the development of pipelines such as Rockies Express.

"Now, the center of gravity for gas production growth has shifted eastward, closer to the regions with the greatest power demand growth," the analysts noted. "This is helping to spur a reshuffling of pipeline priorities to deliver gas from the new centers of production to the (same) regions featuring demand growth."

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