Industrial gas demand set to strengthen

Industrial demand for natural gas could grow by 1 billion cubic feet (Bcf) per day during the next three years as an avalanche of industrial plants expand capacity expansion, said Barclays Capital analyst Biliana Pehlivanova.

Barclay’s analyzed plants for associated gas demand, though Pehlivanova said planned consumption projected to top 6 Bcf per day by 2020 “is highly unlikely.”

More likely, consumption will be about one-third of that figure since most capacity expansion plans are targeted to start after 2015, and their fate is uncertain. Companies may face long lead times, will require environmental and regulatory approval and face financing challenges.

“We believe that industrial consumption growth in 2016-20 will be limited to 2.3 Bcf per day,” Pehlivanova said.

The shale revolution has triggered a flood of industrial expansion plans, particularly for ammonia producers, she said. Companies have announced plans for at least 40 chemical, fertilizer and steel facilities from 2012 to 2014, Pehlivanova said.

In 2013, estimated average industrial natural gas consumption will rise by about 1.6% to 19.03 Bcf per day and prices are predicted to climb to $3.70 per million Btu (MMBtu) in 2013 and $4 per MMBtu by 2015, Pehlivanova said.

Nevertheless, the next three years are promising for natural gas. In 2012, the industrial sector is on track to increase consumption by 300 MMcf per day as restarts and expansions come back online.

In 2013, another 300 MMcf per day growth of industrial consumption is in the offing, Pehlivanova said, as four ammonia facilities are slated to either restart or to undergo expansion. They will consume about 70 MMcf per day of gas for feedstock. Another three ethylene crackers and four other chemicals plants, as well as two metals plants, will also add to natural gas needs. Feedstock for ammonia and direct reduced iron (DRI) processes alone could add as much as 139 MMcf per day in demand.

The manufacture of ethylene will cause yet another surge in natural gas use. While ethylene requires little natural gas, such plants have sizeable power needs and often use onsite gas-fired power plants.

For 2015 and beyond, forecasting becomes murkier. In 2015, natural gas consumption could rise 600 MMcf per day, but if and when are the questions.

Pehlivanova estimates consumption growth is more likely to be 450 MMcf per day. In the years that follow, gas demand could go higher, but large-scale projects could face higher costs.