I frequently write about how transformational shifts in energy production and pricing have been benefitting consumers. As I look out at this point in time, I see a few demand shifts that could have a bit of a braking effect on the low costs of energy we’ve been enjoying. Let’s take a look at three of them!
On the Natural Gas Market:
The increase in low cost natural gas production has provided a new export for the U.S. in Liquefied Natural Gas (LNG). LNG is natural gas that has been turned into liquid by cooling it to -260 F. This liquid is then placed into tankers and shipped to foreign markets where it is expanded by raising the temperature and turned back into a gaseous form. Historically the U.S. has been an importer of LNG. With the advent of shale production and lower NYMEX prices, the LNG import terminals over the past few years have been converted to export terminals.
The impact of this new international demand for natural gas on our market is not small. Sabine Pass in Texas is currently exporting 2 bcf per day of LNG which accounts for about 3% of our domestic natural gas production. Four more export terminals are planned for operation by 2020. It is expected that demand will increase to 10 bcf per day or 14% of current domestic production. Putting this in perspective, this new demand would represent nearly half of all natural gas production in the Appalachian shale regions.
Exports of natural gas to Mexico have quadrupled since 2009 and are expected to continue to increase. The Mexican energy ministry has announced a plan that proposes building 12 new pipelines of more than 3,200 miles with the purpose of accommodating the natural gas supply coming from the U.S.
Like the U.S., Mexico plans to use this natural gas for new power generation. Current U.S. exports to Mexico are 4 bcf per day. With the expanded pipeline capacity this is expected to increase to 5 bcf per day by 2020 eating up a total of 7% of our domestic production.
Bottom line: By 2020, these two new demand sectors will alone consume nearly 21% of our domestic production. Without a significant production increase the low prices we are experiencing today could be threatened.
On the Electricity Market:
Demand for electricity is best described as anemic, growing just 2% from levels 10 years ago. Energy efficiency measures and technology advancements are keeping most new demand increases in check. This will likely continue but one segment could outrun such efficiency achievements.
Data gathering and processing is now ubiquitous in our economy and the data centers at the heart of this activity are showing up as a separate demand sector for the electric grid. These centers require 24-hour supply to process information and to cool the servers. In 2014, data centers consumed about 70 billion kWh which is about 2% of the total U.S. consumption. Such consumption was nearly nonexistent just 10 years ago.
Even though more and more cloud computing centers are planned, the impact on the overall demand of electricity is expected to increase to only 73 billion kWhs. Server technology continues to become more and more efficient requiring less energy to do the same amount of work. In addition, the titans of data (Amazon, Google and Facebook) have been fortifying their data centers with their own renewable generation. An example of this is in our own backyard with Amazon’s announcement of nearly 300 MW of wind generation in western Ohio to support its three Buckeye State data centers.
Bottom Line: Even with the intense building of data centers the electricity consumption only accounts for 2% of the overall demand for electricity. This is likely not enough demand to significantly move the needle on your energy prices, but we see from these dynamic demand trends how very fluid and responsive the energy markets are … worth keeping an eye on for short and long range planning.