Analysis: Gulf Coast refineries, chemical facilities lead recovery in US industrial gas demand

Denver — In a bullish sign for US industrial gas demand, sample nominations to manufacturing, refinery and chemicals facilities across the Southeast and Texas are up this month following steep declines in June.

Through mid-July, gas demand from sampled facilities across the heavily industrialized Southeast and Gulf Coast states is averaging over 1.34 Bcf/d this month – up about 15% from a nearly eight-year low at just 1.17 Bcf/d in late June, data compiled by S&P Global Platts Analytics shows.

In Texas, sample industrial demand has witnessed a similar rebound this month.

Pandemic-related demand destruction has dogged the US industrial sector since early March, as both domestic and global demand for industrial outputs has contracted. Industrial consumers comprise a key segment of the US gas market, representing about one-quarter of total domestic gas demand over the past year.

Prior to the outbreak of COVID-19 in the US, modeled industrial gas demand had averaged nearly 25 Bcf/d in January and February. Last month, demand appears to have bottomed out around 19.5 Bcf/d.

Rising gas demand from refineries and chemicals facilities in the Southeast and Texas this month, though, appears to be signaling a possible turnaround for the sector. In July, US industrial demand is averaging about 20.1 Bcf/d, and was estimated at nearly 20.4 Bcf on July 14, Platts Analytics data shows.

Refineries, chemicals recovery

Refineries and chemical facilities are currently leading the recovery in Southeast and Texas industrial gas demand this month as industry capacity-utilization rates continue to rise amid growing domestic and global demand for industrial outputs.

According to Platts Analytics, global oil demand is expected to continue recovering this month, growing by an estimated 2.2 million b/d in July. In the petrochemicals sector, demand for construction materials including PVC, styrene and insulation have also continued growing recently as commercial and residential building activity gets back underway in the US and across the globe.

At the US level, refinery capacity utilization has made consecutive gains over the past eight weeks, recently hitting 77.5% for the week ended July 3 – its highest since late March, data from the US Energy Information Administration shows.

Sample gas demand data from the US petroleum and coal refining industry reflects a similar recovery in activity with sector-specific demand recently surpassing 750 MMcf/d, up from lows around 660 MMcf/d in late June, Platts Analytics data shows.

Primary metals risk

In the primary metals sector, the pandemic-induced downturn in economic activity this year has continued to weigh on gas demand this summer. In July, the US demand sample from steel and iron ore producers is up only marginally from levels seen in April, when the US slowdown first began to register in the available data.

While construction activity has shown some momentum recently, the possibility for second-wave virus surges and accompanying lockdowns by autumn or winter could prompt another downturn.

During the most recent Great Recession of 2008, gas demand from primary metals producers was among slowest industrial sectors to stage a recovery, hindered by a prolonged and bumpy road back to pre-downturn activity in global construction. Platts Analytics sample data shows gas demand from the primary metals industry did not fully recover until second-quarter 2010, nearly two years after the initial downturn.