This study develops a statistical
model of industrial US natural gas consumption based upon historical
data for the 1958-2003 period. The model specifically addresses
interfuel substitution possibilities and changes in the industrial
economic base. Using a relatively simple approach, the framework can be
simulated repeatedly with little effort over a range of different
conditions. It may also provide a valuable input into larger modeling
exercises where an organization wants to determine long-run natural gas
prices based upon supply and demand conditions.
Projections based upon this demand framework indicate that industrial
natural gas consumption may grow more slowly over the next 20 years
than being projected by the U.S. Energy Information Administration
(EIA). This conclusion is based upon the assumption that natural gas
prices will follow oil prices, as they have done over recent decades.
If natural gas prices should lag well below oil prices, as envisioned
by the latest EIA outlook, industrial natural gas consumption should
rapidly expand well beyond the levels being projected by EIA.