The industrial sector’s natural gas demand is not expected to rebound to favorable 2000 levels until about 2017, even though gas prices are likely to begin easing up after 2006, according to a new report issued by Energy Ventures Analysis Inc. (EVA).

“Beyond 2006, when gas prices are projected to moderate, some growth should return to the sector. However, it likely will be beyond 2015 before U.S. industrial sector rebounds to the [gas] consumption levels of 2000 because some of the demand destruction [that occurs] between 2001 and 2006 will be permanent and the remainder of the industry is focused heavily on energy conservation projects,” said the Arlington, VA-based energy consulting firm in its study exploring the “long-term outlook” for energy.

The EVA report concludes that a “significant portion” of the recent demand destruction within the industrial sector has been permanent. It believes that projected high natural gas prices through 2006 will contribute to further suppression or destruction of demand within the sector. “The critical issue during this period is determining what portion of the industry can survive at $5.00 to $6.00 per MMBtu gas prices.”

Industrial gas demand reached a peak of 8.16 Tcf in 2000, and then tumbled to 7.01 Tcf in 2003. Demand is not expected to begin climbing towards the 2000 level until 2015 (7.9 Tcf) and 2020 (8.35 Tcf), according to EVA.

Industrials have been pummeled by the recent period of high gas prices more than any other sector, prompting a decline of 3.2 Bcf/d, or 14%, in gas consumption, the report noted. Most impacted over the past three years have been the basic chemicals (fertilizers and petrochemicals) and primary metals (aluminum) industries, it said.

“Within the chemical industry approximately 20% of the U.S. fertilizer capacity has been permanently shut down and another 25% has been temporarily shut down, with the latest closures occurring during March and April of this year. At present, at least five domestic fertilizer firms have declared bankruptcy,” according to EVA. The bankrupt firms include Farmland (Midwest and Louisiana), Vicksburg Chemical (Mississippi), Agrifos (Texas), Mulberry Phosphates (Florida) and Agway (Syracuse, NY).

Going forward, the U.S. fertilizer industry may be able to minimize further demand destruction as worldwide nitrogen prices have risen sharply in recent months, EVA said. But in the “long term, when all the transient effects impacting the industry have been phased out, it is projected that at least half of the U.S. ammonia fertilizer industry will be displaced by foreign competition,” resulting in a loss of approximately 285 Bcf per year of gas demand.

That’s primarily due to the low gas prices overseas versus those in the United States. In the U.S. natural gas represents 60% to 80% of the cost to produce ammonia-based fertilizer. But gas prices in competing countries are 40 cents/Mcf (Africa), 50 cents/Mcf (Venezuela), 60 cents/Mcf (Middle East), 70 cents/Mcf (Russia), and $1.25/Mcf (Trinidad/Tobago), EVA said.

In the petrochemical field, European and Asian producers, which use oil (naphtha) rather than natural gas, have a “competitive advantage” over their gas-dependent U.S. counterparts, the report noted.

The picture is equally as bleak in the gas-reliant aluminum industry, according to EVA. “With significant worldwide surplus capacity in the industry (i.e. over the last two years capacity has increased 47%), it is doubtful that there will be another greenfield aluminum plant built in the U.S. Furthermore, it is questionable whether any of the currently idled 12 U.S. aluminum facilities will reopen.” In the Pacific Northwest, which is the heart of the domestic aluminum industry, only one plant is operating (Columbia Falls in Kalispell, MT, at about 20% capacity).

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