I'm a Believer - Rebirth of natural gas feedstock demand

Yesterday was Day#1 of the annual Bentek energy analytics conference called Benposium, being held at the Houstonian hotel in Houston.  I’m not speaking until Thursday so today was an opportunity to hang out and listen to some of the other presenters.  The first two speakers focused on one of the most important issues being addressed at the conference – natural gas demand.  Audrea Hill, Senior Director Hedging, PCS Nitrogen (unit of Potash Corporation) talked about the ammonia market, while Jim Jordan, President, Jordan and Associates (and RBN Energy contributor) examined the markets for Methanol.  Both of these industrial segments are experiencing a rebirth of domestic demand for natural gas as a feedstock. 

This rebirth is not attracting much notice yet, since the numbers are buried under short term market developments.  Or more specifically one market development – the year of no winter.  So far in 2012 the use of natural gas in the industrial sector is down by about 0.3 Bcf/d or 1.5% according to Bentek supply/demand numbers.  That doesn’t sound like much of a rebirth.  But if you look carefully at the numbers, this winter the demand has declined due to weather.  A significant portion of industrial natural gas supply is used to keep factories warm in the winter.  With no winter this year, industrial demand has faltered in the same way gas flows into the commercial/residential sector have declined.

Between today and 2013, industrial numbers will be coming around.  For example, in the ammonia market, five plants are being developed or are restarting, including LSB Industries in Prior, OK.  OSI in Beaumont, TX, Potash in Augusta, GA and Geismar, LA, and Austin Powder in Moshein, TN.  These plants will come on line over the next year and add 982,000 tons per year to U.S. production, replacing about 12% of the ammonia that is currently imported.  To put that growth in perspective, between 1999 -2007, twenty-seven U.S. plants were shutdown, mostly due to the high prices being paid for natural gas.  It is the same story in methanol.  The market died between 1998 and 2010, and is clawing its way back with five plants coming back on line over the next few years.  Both speakers expect a number of additional plants to be announced as producers in these industries jump on the cheap natural gas bandwagon.

Since natural gas has been down at the $2 - $4/MMbtu level for the better part of four years (since early 2009), it might seem like these companies have been dragging their feed on their way back to U.S. natural gas.  And that is pretty much true.  Audrea did a great job of explaining the hold up. 

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