Tuesday, April 9, 2013

Are We Seeing Recovery of Fundamental Gas Demand Drivers?

The latest natural gas consumption data from the EIA shows that natural gas consumption was up 4.4% in January 2013 compared to January 2012.  Last year, we would have assumed that kind of increase would have been attributable to increased use in the utility sector.  Instead, all of the increase year-over-year came from the residential (+9.9% vs. January 2012), commercial (+6.6%) and industrial (+3.5%) sectors. Utility usage was actually down 2.9% in January.

Comparing January 2013 to the ten year average for the month shows utility usage (+35.4%) to be the big driver of the 8.0% increase - no surprise there.  But the good news for gas fans is that residential and commercial usage are both within a half percentage point of the trailing averages. Industrial use is 6.0% above the ten year average. This is a big change from last year and a reason for increased confidence.

A month is hardly enough time to claim a recovery, but the numbers so far this year are promising. Weather likely drove much of the increase in the residential sector in 2013 versus 2012, but the improvements in the commercial and industrial sectors are worth feeling good about. Unless gas prices crash this year, we are likely to see a decrease in gas used by the utility sector.  To keep consumption at 2012 levels, the other consumption sectors need to step up.  So far they have.

Looking back at 2012, it is clear that the utility sector saved natural gas.  Engaging in the fool's errand of prognosticating, I would suspect that the blue line on the chart below will flatten or even decline in 2013 while the green, red and dark blue lines will turn slightly upwards.

But before putting too much faith in the above prediction, allow me to show you my NCAA basketball pool selection sheet from three weeks ago.  You will lose all faith in my ability to see the future.

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