Natural Gas Consumption Reflects Shifting Sectoral Patterns
Note: Charted consumption data includes the four largest natural gas-consuming end-use sectors.
U.S. natural gas consumption since 1997 reflects shifting patterns. Total U.S. natural gas consumption rose 7% between 1997 and 2011, but this modest growth masks bigger changes in individual sectors. Electric power is now the largest natural gas-consuming sector and it shows perhaps the greatest sensitivity to price changes. The graphics below highlight key factors that influence natural gas consumption.
The electric power sector has the flexibility to shift some amount of baseload power generation, much of which has traditionally been fueled by coal, to underutilized natural gas generators without requiring additional investments in infrastructure.
Natural gas consumption for power generation is expanding. An earlier Today in Energy article noted that consumption of natural gas for electric power (or "power burn") has exceeded natural gas consumption in the industrial sector since early 2009. The power sector added a significant amount of new natural gas-fired generating capacity over the last decade, much of which was in the form of efficient combined-cycle units. For many years, while coal-fired generation was less expensive, those natural gas-fired combined-cycle units were used at relatively low rates. Recently, with natural gas prices declining and coal prices rising, dispatching natural gas generators in some parts of the country has become increasingly competitive with running coal generators. Competition between natural gas and coal appeared first in the Southeast, where coal-fired power was more expensive due to the cost of transporting coal over long distances.
In the industrial sector, natural gas consumption increased in 2010 and 2011, reversing a trend of declining consumption that lasted from the mid-1990s to 2009. Natural gas is used in the industrial sector and manufacturing subsector for process heating, steam generation, onsite electricity generation, space heating, and petrochemical processing.
The downward trend in natural gas prices has lowered the cost of a key input for some industries. However, the short-term flexibility to take immediate advantage of low natural gas prices is limited in this sector, because many manufacturers that relied heavily on natural gas as fuel or feedstock closed down or moved abroad in the late 1990s and early 2000s in the face of rising natural gas prices. For various reasons, some of the remaining firms may switch fuel to natural gas, and others may never switch regardless of fuel costs, leaving a wide range of dependencies on natural gas prices (see Tables 10.15 and 10.21 from EIA's Manufacturing Energy Consumption Survey).
Domestic and global macroeconomic trends affect industrial activity, which is often tracked by industrial indices. However, some U.S. manufacturers (e.g., petrochemicals) that use natural gas-derived feedstocks (e.g., ethane) are enjoying a competitive advantage while international competitors consume more expensive, oil-derived feedstocks.
Residential and commercial consumption of natural gas is primarily for space heating, water heating, and cooking; the most influential short-term factor for these sectors is weather (quantified here as heating degree-days).
The residential and commercial sectors have limited short-term flexibility to take advantage of inexpensive natural gas, as heating systems can be expensive to modify and are replaced infrequently. Over longer timescales, the number of households using natural gas for space heating has increased—for example, in the Northeast, households are switching their heating fuel from heating oil to natural gas. However, the increasing efficiency of home heating systems (lower average gas use per customer) masks some of the effect of the increasing number of natural gas customers, even when normalized for weather.
Seasonal patterns in natural gas consumption appear in all sectors. Colder winter weather means more natural gas consumption for space heating, and warmer summer weather leads to increased consumption in the power sector with increasing demand for air conditioning.