Industrial sector consumption of natural gas falls amid slowing economy
The consumption of natural gas in the U.S. industrial sector declined from 25.4 billion cubic feet per day (Bcf/d) in January 2020 to 20.1 Bcf/d in June 2020, according to the U.S. Energy Information Administration’s Natural Gas Monthly. Industrial natural gas consumption in June 2020 was nearly 1.0 Bcf/d lower than its year-ago level. The decline in industrial sector natural gas consumption compared with the previous year began in March 2020, amid responses to the coronavirus disease (COVID-19) that resulted in a global economic slowdown. Consumption by the industrial sector reached its lowest point in May 2020, falling by 8% compared with 2019. May 2020 consumption of natural gas by U.S. industry marked the largest year-over-year decline since July 2009, during the 2007–2009 recession. Before this year, average U.S. industrial natural gas consumption grew 5.4% in 2018 and was relatively flat (growing 0.1%) in 2019.
The amount of natural gas consumed by the industrial sector in the United States typically rises in the fall and winter and declines in the spring and summer in response to changes in temperature-related heating demand. General economic conditions also influence industrial natural gas consumption. Higher demand for manufactured goods increases natural gas demand in the industrial sector.
Beginning in about March 2020, efforts to mitigate COVID-19 were implemented. Responses to the virus, including stay-at-home orders and temporary closings of nonessential businesses, contributed to a slowing U.S. economy. According to the Bureau of Economic Analysis (BEA), the value of goods and services produced in the United States, known as gross domestic product (GDP), decreased by 9.1% in the second quarter of 2020 compared with the same quarter a year ago. A slowing economy as a result of COVID-19 also affected GDP in the first quarter of 2020, which grew 0.3%. Last year, the U.S. economy grew 2.2%.
Industrial activity among industries that consume natural gas has also declined since the spring. Chemical, paper, primary metals, and petroleum and coal product industries account for nearly 75% of the natural gas used in U.S. manufacturing, according to EIA’s Manufacturing Energy Consumption Survey.
The Federal Reserve’s Industrial Production Index shows production activity declines in major natural gas-consuming industries in the United States which began in March. The largest decline in industrial production was from the primary metals industry, which was down by nearly 29% since January 2018, before beginning to recover in June. The chemicals industry, which consumes about 40% of natural gas used for U.S. manufacturing and is the largest-consuming industry for natural gas, declined the least, declining about 5% at its peak. The paper and petroleum and coal product industries also declined notably this spring.
According to the September 2020 Short-Term Energy Outlook, EIA expects consumption of natural gas by U.S. industries to decline by 4.4% in 2020 and then grow 1.1% in 2021. EIA forecasts U.S. industrial natural gas consumption to increase in 2021 because of growth in the overall economy and the natural gas-weighted industrial production index. The index reflects the growth of the underlying manufacturing subsectors and the relative importance of those subsectors to total natural gas consumption.
Principal contributor: Stephen York
Tags: consumption/demand, natural gas, industrial