Our team at ADI spends a lot of time supporting clients assess both North American and global natural gas markets through projects across the value chain from supply through various end-uses. When it comes to natural gas demand, we find that several segments although growing rapidly contribute marginally to gas demand in that sector. A great example is the industrial segment, which has seen significant capital investment over the past few years. Industrial gas, demand, however, has grown much slower than anticipated.
For example, Exhibit 1 shows natural gas demand in the U.S. by key end-use segments. Natural gas use for power generation has grown 3.3% every year in the past few years, and industrial gas demand has grown at a little over 2% over the same time frame. The slower demand growth in the industrial sector is often explained anecdotally as new industrial plants being significantly more efficient than their older counterparts. For example, Dow Chemical Company claims that its products are produced today with at least 40% less energy input relative to energy needs in 1990.
Exhibit 1. Natural gas demand by key end-use segments.
We tried to quantify energy efficiency improvements over the past few years. Exhibit 2 looks at the energy efficiency of the U.S. economy in terms of GDP over the past few years. The graph on the left shows that the U.S. economy today produces almost twice in GDP for each cubic foot of gas consumed per day than in 2002. Most of the improvements were realized during 2002-07 followed by another round of improvements during 2012-17. Energy efficiency gains are not realized at a steady pace, and likely depend on capital investments which slowed down considerably during 2007-12 presumably due to the recession that was contained in that intervening period.
Exhibit 2. Energy efficiency of the U.S. GDP over the past two decades.
The graph on the right in Exhibit 2 illustrates the energy efficiency in the U.S. economy in terms of growth. For every cubic feet of gas used per day, the U.S. economy delivered $1,049 of GDP growth during 2007-12 and almost twice that at $1,901 during 2012-27. In other words, incremental GDP growth in the past five years was nearly twice as energy efficient than incremental GDP growth in the preceding five years.
These energy efficiency estimates are far higher than what anecdotal evidence might suggest, and pose significant implications for various stakeholders including energy producers, OEMs and service providers, consumers, and policymakers.
