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Analysts: Industrial Gas Demand on 'Healthy Pace'

If expansions of U.S. industrial capacity that have been announced all get built as planned, natural gas consumption could grow by as much as 6 Bcf/d by 2020, Barclays said in a note last week.

That's nice for gas producers, but highly unlikely, the Barclays analysts said. More realistic is a "healthy pace" of demand growth: 300 MMcf/d next year; 400 MMcf/d in 2014; and 450 MMcf/d in 2015, they said. That would add up to 1.15 Bcf/d of additional demand. Already, 2012 is poised to see demand grow by 300 MMcf/d.

Barclays analysts Biliana Pehlivanova and Shiyang Wang counted about 80 announced industrial projects slated to come online from 2012 to 2015 and beyond in the steel/aluminum, chemicals, fertilizer, and petrochemical industries. Some are newbuilds, while others are capacity expansions or facility restarts. Most of the projects are planned to come online after 2015. The fate of longer-dated projects is uncertain due to long lead times, environmental issues and regulatory approvals.

"We believe that industrial consumption growth in 2016-2020 will be limited to 2.3 Bcf/d," Barclays said. An optimistic case in which all the announced projects came online as planned would generated 5 Bcf/d of new gas demand over the same period.

But the near term has much to offer, more of which can be counted upon to happen. In 2013, for instance, Barclays said four ammonia facilities are planned to either restart or undergo expansion, adding about 70 MMcf/d of demand for feedstock gas. Further, the direct reduced iron (DRI) process is fairly new to the metals industry and calls for more natural gas use. Feedstock used for ammonia production plus that used in the DRI process combined could add as much as 139 MMcf/d to industrial gas use next year, Barclays said.

Even more industrial capacity additions are slated for 2014, when Barclays sees demand climbing by 400 MMcf/d. "First, consumption should be boosted by the restart and relocation of two methanol facilities with a combined capacity to produce 1.8 million tonnes of methanol," Barclays said. "The plants are estimated to consume about 150 MMcf/d if running at full utilization.

"Second, two nitrogen fertilizer plant expansions are scheduled to come online. Yet another wave of natural gas use should come from ethylene and other chemical plants, with total capacity of 2.1 million tons planned to commence operation in 2014."

While 2015 sees fewer announced facility expansions, the ones planned are more natural gas-intensive, Barclays said. "The use of natural gas as a feedstock at the planned methanol, ammonia, urea and DRI facilities alone could increase demand by 280 MMcf/d. If all announced plants come online, natural gas consumption could be boosted as much as 600 MMcf/d, we estimate." However, an uncertain outlook for projects that are a couple of years away tempers the analysts' estimate to 450 MMcf/d of growth in 2015.

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