14 December 2012 10:04 [Source: ICB]
Planned new US ethylene crackers, as well as new fertilizer, gas-to-liquids (GTL) and methanol projects, could raise the country's industrial natural gas demand by more than 3 bcf/day by 2020, according to US-based investment bank Morgan Stanley.
Cheaper prices could lead to a surge in US export demand for gas by the end of the decade
The analyst said that on the basis of all projects announced to date to take advantage of cheap US natural gas supplies, demand would rise by 5.3 bcf/day.
However, many of these projects will not be realised because of high capital costs, environmental permitting challenges, feedstock competition and other factors.
In the chemical industry, the analyst expects that of the many cracker projects announced, only six new world-class ethylene crackers will be realised - "with at least three new crackers as highly likely".
The analysts therefore narrowed their forecast for incremental US gas demand to slightly more than 3 bcf/day - "still notable in a roughly 85 bcf/day North American market".
But they added that gas demand growth may well turn out to be much larger, especially if Mexico should become an "outsized area of demand growth" in coming years.
"We admit that the potential for an industrial renaissance in Mexico - owing to cheap natural gas prices - may be even more significant than the opportunity in the US and Canada," they said.
As of now, Mexican pipeline capacity remains constrained, the analysts said. However, with the first round of new pipeline capacity expected on line as early as mid-2013 - and more to follow - "we could begin to see an industrial-driven surge in US export demand later in the decade", Andrews said.
Furthermore, potential economic benefits and opportunities for US job creation could result in the fast-tracking of environmental permitting for projects.
In addition, the potential for industrial-linked gas demand may be larger than the market expects as a number of other heavy industries could seek to increase their use of natural gas if prices remain disconnected from the rest of the world.
"For example, many energy intensive industries - refining, cement and steel - may look to replace other forms of fuel, such as coal, coke, with natural gas, spurring demand without the construction of greenfield projects," said Andrews.
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