The nation’s economy may be slowly rebounding from the recession that began more than two years ago, but the outlook for increased natural gas demand remains unclear, according to Adam Sieminski, chief energy economist for Deutsche Bank.
“Energy demand is shifting to the developing countries,” Sieminski said at the American Gas Association’s Natural Gas Roundtable luncheon in Washington, DC, Tuesday. “It’s not the United States and Europe and Japan that are leading energy demand growth. We may be in irreversible decline as far as demand is concerned.”
There are signs that industrial demand for diesel fuel is picking up, he said. “That’s a really good sign that the economy might be doing something, but on the natural gas side it doesn’t seem to be as clear. I have a feeling that a lot of our big natural gas users [moved away]. Petrochemicals went overseas, fertilizers went to Trinidad, copper smelting went to Chili and aluminum smelting went to Russia. If natural gas [pricing] stays low enough long enough, I suspect we’re going to revive some of that. I’m just not sure how quickly it can all happen on the industrial side.”
It is unclear how much demand will come from power generation in the short term, but there is “tremendous opportunity” there in the longer term, Sieminski said.
“The test of when natural gas is going to be more economical than coal seems to suggest that you need gas prices well below $4 — and maybe close to $3 — before you’re going to substitute a lot of gas for coal in power generation.”
And a glut of gas may keep a lid on gas prices, Sieminski said.
“We have an analytics team in Houston that looks very carefully at storage numbers every week, and their conclusion is that at the current rate of storage going into the system and what they can tell from supply/demand balances from those storage numbers, we’re going to be over 4 Tcf of natural gas by the beginning of the heating season, and that’s a lot.” That would exceed even the record numbers from last fall, when storage peaked at 3.837 Tcf in the week ending Nov. 27. “It’s going to be a real challenge if we don’t begin to see some increases in demand or a tapering off of supply.”
In its April Short-Term Energy and Summer Fuels Outlook EIA said it expects gas consumption to decline across the board — except for the industrial sector — in 2011 (see Daily GPI, April 7). Barclays Capital analysts have said supply growth this year could result in lower average prices in 2011 (see Daily GPI, April 1).
Earlier this month Mary Novak, IHS Global Insight managing director, North American energy services, said she expects there to be a slight decline in residential demand for natural gas over the next 20 years, while commercial demand will stay flat and the growth in industrial demand will remain below 1% per year (see Daily GPI, April 8). Natural gas and noncarbon fuels will dominate any increase in demand for generating fuels, she said.
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