Firing up some of the currently idled ethanol plants in the not-too-distant future could spell an increase in natural gas demand just as the results of the lower rig count begin to show up in declining natural gas production, according to an analysis from Newedge, a global brokerage firm.
The ethanol industry emerged last year as a major source of incremental natural gas demand, using approximately 30,000 Btu of gas to make a gallon of the fuel additive, the Newedge report said. With 85% ethanol plant utilization rates that adds up to roughly 770 MMcf/d of natural gas demand, or the equivalent of 1.3% of daily gas deliveries to consumers.
However, a sizeable chunk of the ethanol industry has been rendered inactive in the recession, with as many as 34 plants idled, cutting 2.142 billion gallons of production from nameplate capacity of 11.7 billion gallons per year. The analysis by Antoine Halff and Veronique Lashinski of Newedge, sees the downturn in natural gas demand from ethanol as muting the impact of any production decline that may be developing in natural gas.
That could change. VeraSun, a major ethanol producer now in bankruptcy, will be auctioning off some or all of its 11 plants, which are currently off-line. Those plants could go back into production relatively quickly under new owners, adding to natural gas demand and "compounding the bullish impact of a steeply reduced rig count," the Newedge report says.
"Bullish pressures would dramatically increase if environmental and congressional opposition to hydraulic drilling, critical in shale gas extraction, curtailed nonconventional gas development further down the road," the firm said. Newedge was formed early last year in a 50/50 partnership of two of the world's largest financial groups, Calyon and Fimat, a subsidiary of Societe Generale.
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