Daily Energy Blog

The sustained low price for U.S. natural gas is doing exactly what it is supposed to do – attracting new demand into the market.   Gas fired power generation, LNG exports, exports to Mexico and new industrial demand are all expected to contribute to demand growth for many years to come.  But is this a permanent shift in the market, or could the new demand result in increasing prices that would quash the coming Golden Age of Gas?  After all, the natural gas market has seen this movie before.  We explored this possibility in our recent series titled “I’m a Believer”.  But just because it is a possibility doesn’t mean it is going to happen that way, or even that it is likely.   Because the world has changed.  Today we begin a new series that explores the ways in which the natural gas world has changed, and why the gas market is very unlikely to repeat its roller coaster ride of the past three decades.  It certainly doesn’t have to.

It seems like everybody and his uncle are planning new methanol production capacity in the U.S. The economics certainly are compelling. Low natural gas prices are attracting methanol projects like a magnet, especially to the Gulf Coast; domestic and foreign demand for methanol is rising; and methanol prices are as high as they’ve been in five years. But companies are always looking for an angle, a competitive edge, a chance to make their project the most cost-efficient—and profitable—of all. Today, in “Cheap Trick: ‘I Want You to Want Me(thanol)’”--we consider Valero Energy’s methanol initiative and its cheap trick: a plan to add 1.6 million to 1.8 million tons per annum (MMtpa) of methanol capacity for an investment of only about $700 million. That’s around half what it would normally cost.

Chemicals, gas-to-liquids (GTL), steel and other industries that consume large volumes of natural gas either directly or as a fuel, expecting the new era of low and stable gas prices to continue are planning tens of billions of dollars in new or expanded facilities in the U.S. But how many of those plans will become a reality? Could the much-anticipated industrial renaissance be undermined by the higher gas prices that might come with the approval of a few more LNG export terminals, new environmental regulations that spur still more gas-fired power generation, and higher natural gas exports to Mexico? Those are critically important questions to gas producers and marketers, who are struggling to figure out just how quickly—and how much—demand for gas will rise. Today we continue our exploration of industrial demand for natural gas.