Weather-adjusted demand for natural gas in the United States has been on a downward trajectory over the past decade but the decline rate is small and residential and commercial consumption should continue to be a reliable core source of gas demand, according to research by Barclays Capital analysts.
Analysts Shiyang Wang and Michael Zenker examined recent U.S. gas utility company reports and found “little evidence” of a “significant consumer shift” in domestic gas use. Data from six utilities representative of many of the “key” consuming markets suggested that per-customer consumption had not taken a noticeable shift in direction for demand. Regional differences in customer behavior may lead to a “range of outcomes” among the utilities, but “in aggregate, the data point to a continuation of the larger trend of steady efficiency gains by consumers in their use of natural gas.”
Declining numbers of customers, such as vacant homes and businesses, may cause demand loss, which wouldn’t show up in per-customer results, but “our sample of utilities have seen growing number of customers for the most part,” said the analysts.
“Residential and commercial consumption of natural gas represents the backbone of demand, totaling 32% of gas used in 2010. Consumption of gas by homes and businesses has been on a long-term downward trend, when measured on a consumption per customer basis, but this trend is offset by growing numbers of customers. Weather-adjusted household use of natural gas, for example, has declined by 1.3% per year on a per-customer basis since 1990,” according to Energy Information Administration data.
“Against this historical backdrop, in conferences and in talking with gas utilities, we have heard that residential and commercial consumption had taken an even deeper dive in the past few years, perhaps coincident with the recession. This would obviously pose a concern for overall demand trends, as gains in industrial and power use of gas could potentially be offset by falling residential and commercial demand. Further, gas producers need all the demand they can get.”
Wang and Zenker relied on regional data from utilities for the number of gas customers over a sample period of 10 years. Each of the six utilities sampled “has a significant presence in their respective service regions, and these six are in the key consuming regions of the U.S.” They also wanted to look at residential and commercial demand per customer to control for the size of the gas utility. Each meter was defined as a “customer.” The residential consumption of the six utilities in their sample represented around 22% of the total Lower 48 natural gas consumption for residential and commercial sectors.
The model “certainty has limitations,” and a “dilemma here is that many utilities cover a wide geographic area that could experience an array of temperatures.” The analysts’ methodology used the aggregate annual heating degree days (HDD) for a key city within the service area of the utility. They said the “regression may over or underestimate the effects of weather on the variation of demonstrated demand per customer” but the method “should still give a general idea of the underlying trend in regional weather-adjusted residential and commercial demand per customer.”
Based on their findings, “half of the regions examined exhibited a negative underlying growth trend when weather adjusted. The downward residential and commercial consumption trend was evident in the Southeast, the Pacific Northwest and the Northeast.” Meanwhile, the weather-adjusted household and business demand for the sample utility in the West had no observable growth.
“On the other hand, the West South Central region, as well as the Midwest, exhibited positive growth trends. However, looking at weather-adjusted data for consumption in the West South Central region, there is no obvious trend for demand, even though the slope of the trend line (the annual growth rate) appears to be positive. Data for the sample utility in the Midwest show a more obvious upward trend in weather-adjusted demand per customer per year.”
According to the data, nearly all of the observed demand growth per customer in the West came from “supportive weather patterns,” said the Barclays team. “In the Southeast and the Pacific Northwest, on average, negative underlying demand trends overrode the effects of supportive weather. In the Northeast, the negative trend in per-customer demand can be explained by a milder weather pattern and a negative underlying weather-adjusted growth trend.”
By contrast, the Midwest and the West South Central regions “have experienced demand that did not fall as far as what would be implied by weather alone. That is, absent the downward influence of weather, there would have been per-customer consumption growth.”
In aggregate, across all six utilities “there is a mild downward trend in per-customer demand,” said the duo. “The trend is lower than, but not significantly different from, the 1.3% decline in per-customer usage in the residential sector since 1990. In other words, we find little evidence in a shift in per-customer consumption patterns.”
If the six utilities were representative of the United States as a whole, “demand loss in those two sectors would average about 10 MMcf/d each year over the past 10 years. If this were to persist for another 10 years, we could see a cumulative loss of demand of 0.1 Bcf/d by 2020. This demand could be offset by growing numbers of customers.”
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