U.S. Industrial Natural Gas Usage Falls Unexpectedly

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By Scott DiSavino

U.S. manufacturers have not soaked up as much excess shale gas in the first half of 2015 as expected, but the shortfall may be an anomaly as a Gulf Coast manufacturing boom is poised to insulate the sector from seasonal demand fluctuations.

Average industrial demand for gas in 2015 was expected to increase nearly 4 percent over 2014, according to federal energy forecasts. But almost halfway through the year, it has eased about 1 percent to 21.7 billion cubic feet per day (Bcf/d) from 22 Bcf/d a year earlier, according to Thomson Reuters Analytics.

The primary reason for the decline was a milder winter this year than last year’s brutal cold in the heavily industrialized U.S. Midwest and Gulf Coast.

“The industrial sector has become more temperature-sensitive over the years, so it’s not surprising industrial demand was a little disappointing this winter,” said Kyle Cooper, managing director of research at energy consultancy IAF Advisors in Houston.

Experts, however, expect the industrial sector to become less weather-sensitive as more manufacturing facilities enter service along the Gulf Coast, where heating is in less demand than in the Midwest.

Power generators and manufacturing companies will consume most of the gas in the United States over the next 25 years, according to the U.S. Energy Information Administration. So far this year, however, only the power sector had gobbled up its share of near-record output from shale fields.

Power generators accounted for 33 percent of U.S. gas consumption, burning on average 23.9 Bcf/d so far in 2015. That compared with 20.1 Bcf/d a year earlier and a 10-year average of 19.0 Bcf/d.

With the retirement of dozens of U.S. coal plants for economic and environmental reasons, power generators used near-record amounts of gas this year because the fuel was relatively cheap.

Futures at the Henry Hub benchmark supply point in Louisiana averaged $2.77 per million British thermal units (MMBtu) so far this year, the lowest since 2012. That compared with $4.66 per MMBtu for the same time in 2014.

And the market expects prices to remain low for years as shale gas output grows, with futures trading below $4 through 2022.

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