ADI quantified the price elasticity of industrial natural gas use, distinguishing between fuel and feedstock applications in the petrochemical and refining sectors. The research highlighted significant operational constraints which limit the short-term capability of plants to switch to alternative fuels. By modeling product price indexing for methanol and ammonia, ADI demonstrated how producers mitigate margin risk despite feedstock volatility.
The client
Institutional investment firm
The situation
Ambiguity regarding the impact of rising natural gas prices on industrial demand and the potential for large-scale demand destruction.
ADI’s contributions
Demand-price elasticity modeling
Utilizing a decade of historical data, ADI quantified how specific price increments would trigger measurable demand reductions.
Technical switching assessment
Evaluation of industrial process heat requirements identified which segments lack the flexibility to transition to fuel oil.
Feedstock correlation analysis
Modeling the historical tracking of methanol and ethane prices against Henry Hub reduced uncertainty regarding producer margins.
Primary market research
Targeted interviews with energy managers at major chemical plants provided real-world context on hedging and contract duration.
Key outcomes
- Validated the resilience of U.S. industrial gas demand over the short term, supporting refined capital allocation and risk management strategies.
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