THE NATURAL GAS INDUSTRY IN US

I. Introduction

Natural gas is one of the natural fuels that are used by mankind for both commercial and residential purposes. In the United S America it is mainly used for cooking and heating by the largest percentage households although it is applied as a raw material in the industrial sector as well. The usage of natural gas has increased for the past years with many citizens preferring it to other sources of energy.

Other uses of the natural gas that have emerged with the evolution of the energy and the manufacturing industry include, its use as vehicle fuels, powering the industrial furnaces, running air conditioners among others. The research paper looks into the natural gas industry in the US where it analyses its aspects. It also covers the emergence of the natural gas market, its discovery for the industrial, commercial and the residential use.

The evolution of the natural gas market industry is discussed in detail. Other than these, the research main objective is to analyze the effects of natural gas production in the US and imports from other countries. On the determination of the market structure and the evaluation of supply and demand in the future time series data is used. This is also applied to determine the price of the natural gas process.

The paper is organized systematically where there is literature review that looks into materials concerning the natural gas industry and several aspects would be discussed. Series trend data would be used to determine the supply and demand as well as the price determination of natural gas. The main body of the research paper would discuss and analyze the research findings of the data used in the research paper. The summary and conclusion will be based on the findings of the study on natural gas.

II. Literature

This part of the research paper used paper reviewed materials that have connection to the natural gas industry in the United States of America. The use of the natural gas in the United States of America has increased compared to the recent past. Natural gas is used as a burned fuel in the US, where in the 2009; more than 25% of natural gas was consumed.

These areas of consumption include the generation of electricity, fueling vehicles, heating buildings, heating water, baking foods, running air conditioners, and industrial furnace power. According to a report released in December 22, 2010 by Michael Ratner show that emergence of natural gas use has been necessitated by the fact that it is a cleaner because of its low carbon content.

Ratner (1) points that the combustion of natural gas is known to emit two thirds carbon dioxide less compared to coal, and a quarter less compared to oil. This is an explanation why the use of natural gas has been increasing bearing in mind that the environment conservation has been emphasized during the climate change summit over the years. Other reason why it is highly used in the USA is because natural gas combustion produces less particular matter, nitrogen dioxide and sulfur dioxide when compared to carbon (Ratner 1).

With the discovery of new methods of natural gas extraction like from shale, has encouraged the use of natural gas in the USA. This has been adopted by other countries seeing the demand and supply in the natural gas oil industry increase significantly. Some of the factors that determine the quantity of natural gas demand and the quantities in the market include technical capability, price, environmental concerns, as well as the political considerations in the natural gas producing countries (Ratner 1).

The evolution of the natural gas markets is likely to be determined by the unconventional natural gas reserves the US that is evolving. The USA remains the largest consumer of natural gas with consumption of 22% of the world’s production in 2009. According to Ratner (1) more than 84% of the gas in the USA was used for domestic purpose. This is a large percentage meaning that people have changed their trends in the usage of natural gas in the US.

Usage of natural gas has been there before although it was used in small quantities in the US for only domestic purposes. It has undergone evolution over the years. Over the years the discovery of its usage in industrial and commercial purpose in large quanties has revolutionalised the natural gas market.

According to Nersesian (248) the demand of natural gas has increased with world consuming 24% with the exclusion of bio fuels. US have become the largest importer because of its increased demand for both domestic and industrial consumption. For the residential purpose the natural gas use increase during the winter for the heating purposes. This according to Nersesian (249) has increased the demand for natural gas.

It has also made the prices of the commodity increase with the residential use by residential customers paying the largest bills. This has resulted to the chicken egg syndrome, where the residents depend highly on natural gas in the residential areas for the provision of warm during the winter season. In the industrial sector consumes largest amount of gas with more than 200, 00 consumers forming 35% of the natural gas use. This is less compared to the residential use of natural gas that has more than 60 million users annually.

The demand has continued to increase with the conflict in the Middle East where the oil crisis has affected the oil market. The industrial use includes incineration, waste treatment, dehumidification, petrochemical industries among other industrial uses. The more natural gas is being use the more the effect is relayed to the consumer goods production. This is because it is directly used as raw materials thus affecting the price of these products (Nersesian 249).

According to Roberts (1) the use of the natural gas in the US in the 1970 grew dramatically. He adds that most of the gas produced was a byproduct of the production of the crude oil. This was necessitated by the fact that the oil reserves at that time where lager and would be long lived.

This has changed over the years making the USA the largest importer of natural gas in the 21st century. Roberts (1) adds that for the past 40 years the usage of natural gas has been cyclical and market intervention by the government has been the reason why the trend has been changing. The regulation of the natural gas prices in the market was initiated by the federal government in the 1950s. This was the beginning of the evolution of the natural gas markets.

Roberts (1) notes that the Federal Power Commission was the predecessor of the Federal Energy Regulatory Commission that encouraged the supply of the natural gas through the pipelines and asserted a certain price for this. This saw an increase in the demand of natural gas after the market prices were regulated to low levels. Consequently the exploration rate declined because the returns were low and prices were low too.

After several laws and Acts were passed in the late 1970s the demand decreased and alternative methods of energy generation were put into place. Economic downturn led to decline in demand for industrial use of natural gas and the price of natural gas increased. The demand for natural gas has since increased after the economy has recovered (Roberts 1).

Production and increased demand for natural gas has had several impacts on US. With higher prices of natural gas, it has become more cheap and economical to import some of the products that are related to natural gas. For example, ammonia based fertilizers are imported, and alternative feed stocks have become attractive like the corn oil and naptha that is used for petrochemicals (Roberts 2). Other plants that don’t use natural gas have been closed because they were not ready for the change.

III. Data

The consumption of natural gas in the United States has been extremely high. This is based on the basis of several data trends on the percentage allocation on its use and demand over the years. The allocation of the use of natural gas in different sectors is also discussed and analyzed.

According to Ratner (3) the world consumption of natural gas in 2009 amounted to more than104, 000 bcf that forms 24%. USA formed the largest consumer with 22,849 bcf which formed a 22%. The economic downturn that resulted from the recession and the War in the Middle East has seen a 2% decline in the consumption of natural oil in the US. Ratner (3) notes that a third of the natural gas consumption in the US is used in the electric power generation, commercial use, industrial use, and residential use.

In 2009 generation of electric power had increased as compared to 2008 usage. It had a consumption of 6,900 bcf of natural gas an increase with 3% (Ratner 3). Te transport sector uses the les amounts of natural gas because of the several logistics involved its usage. Although it has no soot and it is environmentally friendly, the logistic hurdle has been the great problem.

Nersesian (249) notes that the projected figures of the usage of natural gas in the US show that it is clear that more than 20% that is over 60 million residents is used for residential purposes. The purpose of this is drying, cooking, heating, pool heating, and consumer space and water heat as well as gas fire places.

The residential demand increases to its peak during the winter with a more than 70% annual consumption although it varies depending on the season. The residential gas consumers pay the largest amount with the commercial users paying only 15%.

This sector has more than five million commercial users making them pay the second largest price. The sectors in the commercial that use natural gas include the motels, restaurants, retail establishments, healthcare facilities, hospitals, government buildings and offices (Nersesian 249). Their demand is not determined by the season it’s an all year usage scenario. Industrial sector forms over 35% in the natural gas total demand with more than 200,000 customers.

The industrial sector faces fluctuation in the demand for natural gas usage although it’s not seasonal. The major effect is the fluctuations and variations in the economic activity changes. The impact of increase in the prices in natural gases is that industries can change to other sources like bio fuels. The electricity sector has more than 5,700 users that account to 30% of the total demand (Nersesian 249). The electricity generation sector has more than 5,000 natural gas generating plants.

IV. The Study

The demand for natural gas in the United States of America has increased over the years making it the largest user. According to Ratner (1) natural gas plays a great role in the world energy mix because of its growing resource base. This is because of it produces low carbon compared to fossil fuels.

Although US have been ranked as the largest importer of natural gas, report by Ratner (2) indicates that the unconventional gas reserves in the US from the shale gas have increased over the last years. Shale gas reserve has increased to 76% with its production increasing to 47%. This has changed the position of US as a net importer of natural gas to a potential exporter (Ratner 2). With the increase in demand, there has been a decline by 2% because of the economic downturn and the recession.

With increase in demand the market price of natural gas has been low. Natural gas price in Canada, USA and UK is set by the market that is set by the economic activities (Retner 11). There are hubs centers that provide the natural gas sellers and buyers with price data that are competitive.

Some of the hubs in US include the LA, Henry Hub in Erath which form a multiple interstate where most of the natural gas pipelines interconnect (Ratner 11). The demand for natural gas has made itself stand itself wholly; this has made it become uncompetitive with other sources of fuels.

The price of fuels in the US is also determined by the consumer needs. For instance, the residential consumers are the ones that pay the highest prices because of their demand that is determined by season. The commercial users follow in terms of demand and pay because of the economic activities. The demand of natural gas in the US is not likely to reduce because the unconventional gas a reserve that has been found.

In most case, the natural gas use in the US has articulated by the fact because gas in available and not expensive compared to other sources of fuels.

The production of natural gas in the use has its impacts. For one it has revolutionized the manufacturing industry by making use of natural gas a car fuels. This is seen as a way that reducing the amount of carbon, sulfer dioxide and other particular particles that are not environmentally friendly. It production has also made sure that its demand remains high with no reservations of its use getting low.

Production of ammonia has been affected with its production reducing drastically. According to Huang (15) the raw materials for ammonia fertilizers in the natural gas and its production have reduced because of the increased prices associated with natural gas. The production has reduced by 35% and the ammonia production plants have reduced over with 44%. This has reduced the supply of ammonia gas in the US with many companies opting to import ammonia from other countries because it’s cheap.

Other producing countries especially in the Middle East have the lowest prices of natural gas. This is obviously going to have negative impact on the price of natural gas in the US.

According to Huang (11) the imports of natural gas in the Middle East and the North Africa have been limited to low capacity production. With the in prices being low the imports from these countries is more likely to affect the exportation of natural gas to the US. Although these countries do not produce ammonia fertilizers from natural gas, if they did they would have a large market share in Asia and China compared to US. The imports may also reduce because with sustainable natural gas production there is no need to import natural gas.

The countries that export natural gas in the US will have to find another suitable market because the imports will reduce drastically (Gene 138). This is because of the production of natural gas in the US. It is also going to affect the manufacturing industry because increased production would mean more employment and industrial production. Imported natural gas is clean. According to Gene (138) the production of natural gas would see production of by products that would boost the economy.

V. Summary and Conclusion

Natural gas is used in large quantities in the USA with the household consumptions leading the usage followed by electricity generating. Natural gas household consumption include heating water, warming houses, cooking, powering fans, heating pools, ironing among others. For industrial use it is used as raw materials, powering industrial furnaces, running the air conditioners, incineration, waste treatment, dehumidification, petrochemical industries among other industrial use.

In the manufacturing it is as fuel in car, manufacture of ammonia based fertilizers, plastics and other materials. The reason why natural gas is preferred is because its environmentally clean, compared to coal. It also produces less sulfur dioxide gas and carbon and other particular matter. The discovery of unconventional natural gas reserves from shell formation has prompted the demand to increase. The emergence of the use of natural gas can be traced in years back although it was used in small quantities.

Over the years it usage has been increasing with the US being the largest user and importer. It uses natural gas in the residential places, transport sector, the industrial sector and the commercial sector. The increased uses have prompted the demand to increase and importing its gas from natural gas producing states like Russia. The statistics clearly show how US has been using natural gas with the population using natural gas increasing annually.

For residential use natural gas fluctuates seasonally with summer having the highest demand. On the other hand the industrial gas demand is determined by the economic activities. The market for demand of natural gas has evolutionised over the years after several laws governing the productivity, transport and pricing. The pricing is determined by the demand of natural gas in the US and the Middle East political stability.

The demand for natural gas is not likely to reduce over the years because of its environmentally friendly aspect. The United States is now becoming a net exporter as opposed to a net importer of natural gas due to the discovery of unconventional reserves.

The price in the US is determined by the market demand and the economic activity. From the research it is noticeable that because of its various aspects, natural gas is not competitive from other kinds of fuels. The production of natural gas in the US is likely to have effects. The demand is more likely to increase and so are the prices.

This would mean that imports from other countries may be reduced because they have their own sources. In terms of export however, this may reduce because the Middle East and North America produces natural gas that is of low price. The production of ammonia in the US has declined over the years because of its high price. Despite the fact that natural gas is being produced in the US, the price hikes has made it cheap and economical to import ammonia fertilizers from other countries.

Works Cited

Gene, Whitney C. E. B. Energy: Natural Gas. S.l.: Thecapitol Net, Inc, 2010. Print.

Huang, Wen-yuan. Impact of Rising Natural Gas Prices on U.S. Ammonia Supply. Agust. 2007. Web. 11 Jun. 2011. < http://www.ers.usda.gov/publications/wrs0702/wrs0702.pdf>.

Nersesian, Roy L. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Services. M E Sharpe Inc, 2010. Print.

Ratner, Michael. Global Natural Gas: A Growing Resource. 22 Dec. 2010. Web. 11Jun.2011.

Roberts, J. Paul. The Evolution of Natural Gas Markets. n.d. Web. 11Jun. 2011.