Why Is Natural Gas Demand Growing? James Osten Principal, Global Insight

Transcription

1 Why Is Natural Gas Demand Growing? James Osten Principal, Global Insight

2 The U.S. Gas Market Survives Recession High natural gas prices, but much higher oil prices Interfuel substitution: Industry is still substituting natural gas for oil Chemical demand increasing for feedstock and production of ethanol Natural gas has escaped the recession so far: Low value of dollar has promoted strong exports supporting strength in chemicals, metals, petroleum refining and manufacturing Gas demand risks offset: oil prices and the economy Copyright 28 Global Insight, Inc. 2

3 Natural Gas Price at 53% of Crude Oil! Henry Hub Trailing Crude Oil & So Is Ethane 25 (Dollars per million Btu) 2 Ethane is a critical petrochemical feedstock ethane price is lagging behind oil and approaching gas Henry Hub $1.91 $11.2 (percent of crude) 53% 55% Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Henry Hub West Texas Intermediate Ethane Mt. Belvieu Copyright 28 Global Insight, Inc. 3

4 Natural Gas Demand Growth Surprised in First Quarter 28 Natural Gas Demand Grows 3.7% during First Quarter 28 Led by Industry 2.5 (Trillion Btus) (percent) Residential Commercial Industrial Electric Generation Percent Change (RHS). Copyright 28 Global Insight, Inc. 4

5 U.S. Industrial Production Growth by Sector (Percent change) All manufacturing Chemicals Petroleum refining Iron & steel Aluminum Glass Fertilizer Cement Copyright 28 Global Insight, Inc. 5

6 Natural Gas Demand De-linked from Economy? Pluses for Industrial Demand High oil prices and interfuel substitution Power Generation and Cogeneration Weak Dollar and Export industries Agriculture Ethanol Minuses for Industrial Demand Economic downturn in critical sectors for energy intensive industry Consumption Construction Transportation equipment Investment going overseas Copyright 28 Global Insight, Inc. 6

7 Natural Gas Drivers Are Mixed: Exports & Chemical Sectors Support Gas Demand Growth But Key Sectors Do Not Natural Gas Demand for Ethanol Production (Billion gallons LHS, trillion Btus RHS) Ethanol (LHS) Natural Gas Demand (RHS) Weak 28 for Energy Intensive Industry (Percent change from a year earlier) Industrial Production Transportation Construction Consumption Real Exports Rising (Percent change from a year earlier) Investment Slumping in U.S. (Percent change from a year earlier) Exports Imports Business Investment Copyright 28 Global Insight, Inc. 7

8 Chemical Demand Increases Are Temporary Chemical Natural Gas Demand increasing in 28 but then declining in 29 (Trillion Btus) (22 = 1) Little investment and challenges from Mid East expansions Demand (LHS) Production Index - Basic Chemicals (RHS) Copyright 28 Global Insight, Inc. 8

9 Industrial Gas Demand Rising in Food and Petroleum Refining But Declining in Steel, Glass and Paper 35 (Trillion Btus) Industrial Natural Gas Demand Mix is Changing demand growth from chemicals, petroleum, and food. Other sectors decline so long term growth is weak Petroleum Food Aluminum Iron and Steel Paper Glass Construction Copyright 28 Global Insight, Inc. 9

10 Natural Gas Demand is Growing: 17 Trillion Btus in 27 & 28 3, 25, (Trillion Btus) Demand Growth: Power Generation High oil prices and process changes growth in metals, agriculture and exports 2, 15, 1, 5, Residential Commercial Industrial Electric Generators Other Copyright 28 Global Insight, Inc. 1

11 Residential and Commercial Demand Driven by Weather Demand increase from 199 to 2 was in an era of low energy prices and rapid economic growth Low demand in 26 reflects mild winter Demand in 28 is lower than in 2 Residential Demand is Weather Sensitive (Trillion Btus, Degree Days) 6 Commercial Demand also Weather Sensitive (Trillion Btus, Degree Days) Residential Demand Heating Degree Days Commercial Demand Heating Degree Days Copyright 28 Global Insight, Inc. 11

12 Natural Gas Use in Power Generation Is Increasing Electric Generation Demand for Gas Increasing (Demand trillion Btus-LHS,Capacity Gigaw atts-rhs) Electric Generation Gas Demand Gas Capacity Electric Generation: Added 25 gigawatts of gas Rising utilization Meets environmental challenges Only growth sector Copyright 28 Global Insight, Inc. 12

13 Industrial Demand Decreasing from Structural Change Industrial Demand Showing Efficiency Gains (Trillion Btus-LHS, production index 22=1 RHS) Industrial Demand Energy Intensive Production Index Industrial Demand: Demand destruction in 21, 23, and 25 Growth in 28 despite high prices and recession Rapid efficiency gains Long term declines in key industries New growth areas Copyright 28 Global Insight, Inc. 13

14 Industrial Natural Gas Demand Decreasing from Efficiency 85 Industrial Natural Gas Demand and Electricity Demand Show Efficiency Improvements (Ratio to Production (Ratio to Production Index) Energy-intensive manufacturing in long-term decline Industrial Demand per Output (LHS) Electricity Demand per Output (RHS) Copyright 28 Global Insight, Inc. 14

15 Demand Growth Offset by Efficiency Gains 1 Chemical and Refining Energy Efficiency Improving Energy per Unit of Production, Indexed 22=1 9 Process efficiency shows steady improvements 8 Steam Cracking Other Chemical Operations Refining Source: ExxonMobil Copyright 28 Global Insight, Inc. 15

16 Volatile Prices from Weather Sensitive Demand Henry Hub ranges between US$9 and US$12 in the next two years Demand is driven by weather, power sector, and economic impacts on industry Pipeline projects to serve power sector and weather sensitive demand have not brought all prices closer to Henry Hub (convergence) Rex-West brought more supply than market and prices are still low New England remains a premium market when winter temperatures fall Copyright 28 Global Insight, Inc. 16

17 Industrial Gas Demand Faces Biggest Declines in Summer 2.5 Industrial Natural Gas Demand Decreased 18% or 1.5 Trillion Cubic Feet Since 2 Quarterly Industrial Natural Gas Demand in Trillions of Cubic Feet Winter heating demand; largest seasonal decrease is in summer Jan-Mar Qtr 1 Apr-Jun Qtr 2 Jul-Spt Qtr 3 Oct-Dec Qtr Copyright 28 Global Insight, Inc. 17

18 Power Sector Demand Grows in Summer Power Generation Natural Gas Use Increased 37% or 1.7 Trillion Cubic Feet Since 2 Quarterly Power Generation Demand in Trillions of Cubic Feet Gas meeting 6% of incremental power load in summer Jan-Mar Qtr 1 Apr-Jun Qtr 2 Jul-Spt Qtr 3 Oct-Dec Qtr Copyright 28 Global Insight, Inc. 18

19 Price Volatility Highest at Citygates in Weather-sensitive Demand Regions East and West Coasts Prices at Citygates Are More Volatile than Prices at Supply Hubs NG Price Standard Deviation for 2 to May 28 Red = Supply Hub Blue = Citygate Green = Citygate with LNG Chicago less volatile than Henry Hub Mid Continent Aecoc/NIT Houston Ship Channel Opal, Wyoming Chicago Henry Hub Sumas Malin Southeast Citygate(LNG) PG&E New York Topock New England(LNG) Copyright 28 Global Insight, Inc. 19

20 Chicago Has Converged with Henry Hub, Rockies Have Not Volatile Basis for Chicago Despite Adding Pipelines to Supply Regions (dollars per million Btu) Supply Region prices move upwards less than Henry Hub prices thus less volatile Jan- May- Sep- Jan-1 May-1 Sep-1 Jan-2 May-2 Sep-2 Jan-3 May-3 Chicago-Mid Continent Chicago-Aecoc/NIT Sep-3 Jan-4 May-4 Sep-4 Jan-5 May-5 Sep-5 Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Chicago-Henryhub Chicago-Cheyenne Copyright 28 Global Insight, Inc. 2

21 Price Volatility Reflects Changing Market Regional Prices Range From $8 up to $16 18 (dollars per million Btu) Prices remain volatile 2 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Henry Hub New England Chicago California Border Cheyenne Copyright 28 Global Insight, Inc. 21

22 Thank you! James Osten Principal, Global Insight