US INDUSTRY ADJUSTING TO HIGHER GAS PRICE PLAYING FIELD
Industrial end users of natural gas are facing a sustained period of high natural gas prices unlike in any period since the late 1970s and early 1980s. Gas prices averaged $5.45 per MMBtu in 2003, a 71 percent increase over the average of the previous five years. Key industries that rely on natural gas have responded over the past few years with curtailments in production, idling of plants, and in some cases permanent plant closures. Has the natural gas industry already experienced the loss of the more sensitive industrial demand? How much more industrial demand is at risk?
- Loss of the most sensitive industrial demand reduces an important ""shock absorber"" in the gas industry. The permanent loss of a portion of price-sensitive industrial load reduces some of the demand cushion that is important in dampening gas price run-ups.
- The potential for political pressure is heightened. With the US manufacturing base already threatened by a range of other forces, increased energy prices will motivate industrial groups to pressure policymakers to investigate or intervene in the natural gas markets.
- The big bet on gas by the power industry. The build-out of nearly 200 gigawatts of gas-fired generation makes gas demand growth from the power sector inevitable with economic growth. With the inability of the continental supply base to meet growing demand, there is a great potential for industrial demand to be displaced, especially if new sources of supply (such as liquefied natural gas) are not brought to market later this decade.
