Think Tank: US natgas demand could spike prices

28 June 2013 09:55  [Source: ICB]

A sharp increase in domestic and foreign demand for newly abundant US natural gas supplies could outstrip even record-setting output and lead to a shortage and price spikes within two years, according to a new natgas market analysis.

Raymond James & Associates said that "based on our sector-by-sector analysis of future US natural gas demand growth, we believe US gas prices are poised to improve over the next five years. We could see a sharp gas demand surge in 2015 or 2016 that even leaves the US gas market temporarily short of gas," said Raymond James ­energy analysts Marshall Adkins and Pavel Molchanov.

 Prospect of hikes in demand loom for US natural gas

Rennett Stowe

The report cautions that there is "the possibility of a short-lived gas price spike in 2015/16 if surging demand temporarily outpaces the industry's ability to bring new supply online".

The prospect of a rapid increase in natural gas prices is a concern for US petrochemicals producers and downstream chemicals manufacturers because they are heavily dependent on natgas as both a feedstock and a power fuel.

Ironically, says the Raymond James analysis, the potential spike in gas prices could in large measure be attributed to sharply increasing consumption of natgas by the nation's petrochemicals producers.

Chemicals sector demand is only part of the picture, though.

Adkins and Molchanov note that "across the US there is an increasing number of longer-term natural gas consuming projects, [including] ethylene crackers, coal retirements, gas-to-liquids [GTL], ammonia plants, LNG exports and exports to Mexico that should drive US gas demand steadily higher over the next decade". The main demand driver, however, will be industrial use, they said.

"The largest driver for industrial demand should be ethylene crackers and gas-to-liquids facilities," the report says, noting that "Three petrochemical companies have actually filed for a permit to build the ethylene crackers, while others are proposed."

Noting that multiple factors may side-line some of the proposed crackers, Raymond James said that "nonetheless, we believe that at least four will get built, adding nearly 1bn cubic feet per day (bcf/d) of incremental demand" for natural gas. "Gas-to-liquids is a harder segment to forecast, given that no investment decisions have been made regarding the proposed GTL mega-projects, but if even one such facility were to get built, it would add a very meaningful amount of demand," the study said.

By: Joe Kamalick
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