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Natural Gas Demand: As Temps Heat Up, ResCom Cools Down

Could industry forecasts for future ResCom natural gas demand be off by 3.5 Bcf/d? The natural gas industry seems to be perpetually in search of new sources of natural gas demand. While additional LNG export demand and exports to Mexico are expected to drive gas demand growth over both the short and long term, today’s energy market commentary considers another trend that could offset some of those gains.

Weather and specifically temperatures are a large driver of demand in the ResCom sector. Typically, as temperatures fall, ResCom demand rises.  Many forecast models, including BTU’s, use historical temperatures to predict future temperatures. However, higher average temperatures could change demand predictions adding yet another factor to consider when forecasting future natural gas demand.

Usually ResCom experiences peak demand during the winter. However, if average temperatures were to continue on an increasing trend, the seasonal demand peaks become not so high, decreasing ResCom demand overall. If the current trend in New York temperatures from 1975 to today is continued through 2050, ResCom demand falls 2 Bcf/d below BTU’s base case forecast. Most of the deviation is in the winter months when the cold winters may not be so cold.

Using temperature trends from the 2000’s projected forward would result in a decline in average US ResCom demand of 3.5 Bcf/d by 2050, about 16% of the current ResCom demand. The impact of both potential cases is modeled below.

While much is written about the long-term growth expected from export demand and even the trajectory of power demand, longer term trends in ResCom should also be considered to round out any long-term view on natural gas fundamentals. For BTU’s long-term views on all the major categories of natural gas demand, request a sample of our Long Term Gas Outlook.

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