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December 12, 2022

Natural gas consumption in the industrial sector has grown slowly in recent years

annual U.S. industrial sector natural gas consumption
Data source: Natural Gas Monthly, November 2022; Short-Term Energy Outlook, November 2022

In the industrial sector, natural gas consumption in the United States increased by 1.9% in 2021. In our November Short-Term Energy Outlook (STEO), we forecast that it will increase by 2.4% in 2022. We expect U.S. industrial consumption will reach record highs in 2022, which will reverse a multiyear downward trend caused by reduced economic activity that resulted from the pandemic. We expect a 3.4% decrease in natural gas consumption in the industrial sector in 2023, driven by a decline in the manufacturing production index as well as high natural gas prices.

Much of the 2022 increase comes from the chemicals subsector and the other manufacturing subsector. The chemicals subsector, the largest natural gas consumer in the industrial sector (29%), uses natural gas to create heat, generate electricity, or serve as a feedstock to produce methanol, fertilizer, and hydrogen. Natural gas used to produce fertilizer is one of the largest chemical feedstocks. Fertilizer demand remained relatively flat in 2021 and 2022, and we expect it will continue to remain flat in 2023.

Methanol (CH3OH), a natural gas-derived substance that’s widely used as a precursor for chemical derivatives, is another one of the largest chemical feedstock uses for natural gas. In recent years, the United States added significant methanol production capacity, particularly in Texas and Louisiana. U.S. methanol production capacity grew in both 2021 and 2022, and increased throughput accounted for some of the increased industrial consumption this year.

Crude oil refineries are an important natural gas consumer as well, accounting for about 14% of all industrial natural gas consumption in 2021. U.S. natural gas consumption by refineries has grown consistently through 2021, driven by Gulf Coast refineries, even as vehicle miles traveled dropped sharply in 2020 and remained lower than average in early 2021. In particular, natural gas used for fuel (heat and power) has increased steadily since 2017. Natural gas used as a hydrogen feedstock has decreased, partially offsetting the increase in fuel use, but overall natural gas use at refineries trended up in 2021. In addition, hydrogen input to refineries increased in 2021, reflecting increased merchant purchases of hydrogen at refineries over internal production.

Principal contributor: Mike Kopalek