The growth rate of natural gas demand in recent years appears unsustainable, and outside of LNG exports, domestic consumption of the fuel may be plateauing, according to Deloitte.

Believers that coal-to-gas switching in power generation will provide greater demand for U.S. natural gas could be in for a rude awakening, the report from Deloitte indicated, as exports and greater industrial demand are more to fill the gap created by new shale production.

The combination of low or moderate economic growth, slowing population growth and better energy efficiency mean that domestic energy consumption will grow more slowly over the next decade and could even decline, the Deloitte analysis concluded.

Deloitte's analysts pin the greatest hope for increased domestic gas demand on expanded use by heavy industry, which the firm says is not certain. Through several different scenarios, Deloitte believes the most likely case is that industrial demand grows at a rate of around 2% per year, from 21 Bcf/d to 23 Bcf/d by 2022.

"Over the next five years, industrial demand is expected to grow modestly, contributing most, if not all, of the domestic topline consumption growth," the firm said. "Beyond that, both US and global growth trajectories are less certain, as will be the energy intensity of that growth. However, assuming limited trade disruptions, a number of petrochemical plants under construction — or to be sanctioned in the next few years — will likely contribute to consistent, if potentially slower, long-term growth as US industry continues to leverage its low-cost gas, gas liquids, and light tight oil resources."

Deloitte said increased exports will also be needed in order to balance the U.S. supply and demand equation. While the firm said it expects gas exports to Mexico to continue at a robust clip, it gave a much more mixed appraisal of the chances for American LNG exports.

"Fortunately for domestic producers, companies are in the process of building roughly 8.5 [Bcf/d] of gross export capacity, with potential for further capacity expansions by the middle of the next decade. If that capacity is fully used, it would represent an almost 30 [Bcf/d] net trade shift since 2005," Deloitte said. "However, the global gas markets are in a state of flux — with excess capacity potentially lingering through the early- to mid-2020s — and low prices due in part to oversupply and oil-indexed pricing accounting for much of the trade. Based on likely market conditions, Henry Hub natural gas prices will likely need to remain below $4.35[/MMBtu], if not lower, to be competitive on a head-to-head basis with internationally sourced cargoes."

In the power sector, demand for natural gas has increased from 18.7 Bcf/d in 2007 to 27.4 Bcf/d in 2016. The idea that demand will spike in the near future appears far-fetched. The combination of rising gas prices, cheap coal prices, a continued push toward renewables and slow electricity demand growth should stop the surge in gas generation.

"Bearing all of that in mind, increasing demand to 28 [Bcf/d] is likely close to the maximum sustainable annual rate, and there may, in fact, be more downside than upside," Deloitte's analysts wrote. "The current five-year average is roughly 24 [Bcf/d], but future consumption will likely be lower if delivered prices top $4[/MMBtu] on average over the next few years."

If a flat demand growth scenario takes hold, the midstream sector is particularly at risk, Deloitte noted. Infrastructure under development and other expansions being considered could be underused.

"Identifying growing downstream users and balancing the risks of under- and over-building infrastructure remain vital to sustained midstream growth," according to Deloitte.