THE ETHANOL BOOM: CREATING A NEW MARKET FOR NATURAL GAS

The use of natural gas to produce ethanol is expected to grow from over 400 million cubic feet (MMcf) per day in 2006 to a range of 700 to 1,000 MMcf per day by 2012. This will make it one of the largest sources of industrial sector gas demand in North America. That over 90 percent of current and proposed ethanol capacity uses natural gas as a thermal source for the production of ethanol, coupled with the federal Renewable Fuels Standard of the Energy Policy Act of 2005, which mandates a 489,000 barrel per day market for ethanol by 2012, assures surging natural gas demand from this industry. Other implications for the industry include

* The need to connect small-scale and widely dispersed ethanol plants to sources of natural gas supply could provide a new base-load business for natural gas pipeline companies.
* The demand for hedging and other financial services from ethanol producers could generate business opportunities for gas traders and marketers.
* An increase in ethanol production as a fuel for vehicles will serve to slightly increase demand and price linkages between natural gas and oil markets.
* If corn demand grows as a result of rising ethanol production, this increased corn production might require more ammonia-based fertilizer, further amplifying ethanol-related demand for gas beyond the above estimate. Each ton of ammonia requires 33.5 million British thermal units of natural gas as feedstock.

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