Do US demographics trends, energy efficiency, and climate change mean US Residential natural gas demand peaked? While all forward views on US natural gas balances are heavily influenced by demand forecasts driven by LNG exports, exports to Mexico, industrial demand, and power demand growth (as we have discussed in previous blogs), eroding residential and commercial (res/com) demand does not help macro US natural gas supply demand balances.
As the slide shows below, the Upper Midwest is the stronghold for residential natural gas demand supported by high penetration of utility gas household heating, large populations, and cold winters. According to the US Census, 68 million people or 21% of the US population (where total US 2016 population is 323 million) live in the Midwest in states like Illinois, Wisconsin, Minnesota, Wisconsin, Michigan, Indiana and Ohio which have more than 60% of households heated by natural gas.
Further, the impact of climate change driving global land-ocean temperatures higher, as shown below, is not helpful to maintaining robust res/com natural gas demand balances as winters come in warmer and summers come in hotter than historical norms. Below are cumulative HDDs for Chicago winters since 1980 with a trailing 5-year average which does show a slight trend lower in winter HDDs over time.
Finally, the other concerning trend as it relates to robust res/com demand is the combination of tighter building codes and the trend of the US population moving to warmer climates in the South and West results in per capita US natural gas demand declining since the 1970s as shown below. US Census regional analysis shows that from 2010 to 2016 the US population grew by 14 million people however in that same time period the South and West regions net grew by 12 million people while the Midwest and Northeast net grew by 2 million people. In 2016, 62% of the US population now lives in South and West where milder winters require less household heating demand and in some Southern states, low levels of natural gas household heating exists.
With E&Ps becoming more and more efficient at producing low cost natural gas, every ounce of demand counts to balance the market. It would appear market participants should not bank on res/com demand to bolster US natural gas demand. Join BTU Analytics at our annual What Lies Ahead conference in Houston Wednesday, February 8th.