In 2014 and 2015 many in the market thought industrial demand would provide a much needed bright spot in the future. Amid ample supply gains, the market was looking for new incremental gas demand to help absorb low cost supply coming out of the Marcellus and Utica. Seemingly in answer to those prayers, methanol and fertilizer projects were announced, creating the potential for close to 2 Bcf/d of natural gas demand growth between 2014 and 2016. But alas, with the passage of time the light has dimmed on those projects and industrial forecasts have been subject to repeat cuts over the past year.
The EIA has been one of those organizations to repeatedly cut industrial demand in their Short Term Energy Outlook reports. In its latest report, published January 2016, they expect industrial demand to average 21.3 Bcf/d in 2016 and 21.9 Bcf/d in 2017. Compare that to their report from one year ago, published in January 2015, where the EIA expected industrial demand to average 22.5 Bcf/d in 2016, 1.2 Bcf/d higher than current estimates.
The reasons for these declines are wide ranging and can’t be definitively stated but the global economic slowdown, strength of the US dollar and a weak start to the winter have all reduced demand at existing facilities and have likely caused those pursuing new facilities to question their investment decisions.
Across the country in 2015, industrial demand averaged roughly 20.5 Bcf/d and, unsurprisingly, Texas led the US in industrial natural gas consumption. Since 2009, after taking a hit post-Great Recession, industrial demand has made a steady and slow march upward, where Texas has noted the largest gain in consumption, increasing by almost 1 Bcf/d.
Following Texas, the Midwest and Louisiana both noted strong gains of 0.6 Bcf/d and 0.5 Bcf/d, respectively. These three regions are home to the vast majority of new announced projects and can contribute materially, from an industrial demand perspective, to balancing the market over the next two years.
As we look to the remainder of 2016 and past that into 2017, BTU Analytics is tracking numerous methanol and fertilizer projects that have the potential to add meaningful incremental demand to the tune of 0.8 Bcf/d. But again, some of these projects’ activity has slowed and their ultimate start date and utilization are still unsure. Spring startup dates would have been ideal for these facilities, as ample $2 gas will continue to linger due to robust stock levels. However, as the commodity crunch trickles through and US production rolls, the wave of industrial demand might be too much, too late.
