Growth of the U.S. Natural Gas Demand Requires New Midstream Infrastructure

The United States is in the midst of a natural gas boom. Natural gas demand in the country has increased by nearly 40% from just 2000 to 2022 and is projected to continue rising through 2050. This growth in demand is being driven by several key factors:

1. Increased utility need in new greenfield gas-fired power generation
2. Legacy power plant coal-to-gas fuel conversions
3. Expanding industrial utilization, including that stemming from clean energy initiatives such as ammonia, hydrogen, and methanol production,
4. Growing liquefied natural gas (LNG) exports supporting energy needs worldwide
5. Increased commercial and residential usage as population centers continue to grow, and aggregate in urban areas, and
6. Growing US natural gas supplies from key production basins, including the Permian, Haynesville, Utica/Marcellus, Eagle Ford, and several others.

However, realizing the full potential of US natural gas relies upon a robust, extensive midstream sector–the backbone connecting supply and demand. This underlying network of transmission pipelines, storage facilities, gathering and processing infrastructure, and export terminals requires significant expansion to match our increasing demand needs.

Navigating the complex natural gas landscape to connect producers and consumers requires expanding infrastructure capabilities across the energy value chain. Industry leaders must align with policymakers, sustainability advocates, and local communities to unlock development barriers.

This article dives into the tailwinds driving America’s demand for our abundant, domestic natural gas. We will explore the crucial role of midstream in realizing the required reliability, sustainability, and market goals. Delving into economic, environmental, and regulatory considerations surrounding expansion provides a critical perspective into our US energy future.

The Surge in US Natural Gas Demand

US natural gas demand has seen robust growth since 2000, driven by the power generation, residential, commercial, and industrial sectors. This upward trajectory is forecasted to continue over the coming decades.

Total US Natural Gas Demand

According to the US EIA, total consumption of natural gas in the US has risen substantially from 2000 to today, from 63.9 billion standard cubic feet per day (BCFD) in 2000, to 88.5 BCFD in 2022 (last year of data available).  This is nearly a 40% increase in demand, over a relatively short period of time.  Below, we will investigate the trends within this phenomenon, by major gas market segment.

US Power Generation Natural Gas Demand Growth

Demand from power generation has increased significantly in the 2000’s However, the pace of demand acceleration has varied over that period.  From 2000 to 2010, electric power generation demand increased from approximately 14.3 BCFD, to 20.2 BCFD in 2010, a 41% increase for the period (US EIA).  Coal was still a more dominant fuel for electricity at the time. Natural gas usage rose steadily throughout the 2010s, to 31.9 BCFD in 2020, an acceleration to 58% increase in demand over that latter period of the same duration, finally surpassing coal as the top fuel source for power generation. More recent historical data shows continued strong growth in the early 2020s, as natural gas increases its power generation market share even further, with demand in the power generation sector reaching 33.2 BCFD in 2022.

US Industrial Sector Natural Gas Demand

Industrial gas demand began the 2000s at 22.3 BCFD, and dipped in the mid-2000s, ending the decade at 16.9 BCFD, a nearly 25% decrease in demand over the decade. A gradual recovery was seen throughout the 2010s, reaching nearly 23.1 BCFD by 2019 a 37% increase for the decade. This upward trend is continuing through the 2020s as well.

US Residential and Commercial Sectors Natural Gas Demand

By contrast, natural gas consumption by residential and commercial customers in the US has been relatively flat from 2000 to today.  In 2000, residential and commercial demand equated to 22.4 BCFD, actually decreased to 21.6 BCFD in 2009 and 2010, and then grew over the 2010s decade, to 23.4 BCFD in 2019. In 2022, residential and commercial demand was 23.2 BCFD.  Underlying these trends are several complex factors, including weather, appliance electrification in certain areas, population growth, and other factors.

Midstream Infrastructure: The Backbone of Market Growth

Growing natural gas demand across power generation, industrial utilization, and liquified natural gas (LNG) exports (that we have discussed in several previous articles), requires significant expansion of midstream infrastructure. This includes the vital network of pipelines, storage facilities, processing plants, and compression stations connecting producers and consumers.

Importance of Pipeline and Storage Expansion

Building out capacity across the midstream supply chain is critical for meeting this increasing consumer demand, but also ensures energy reliability during peaks in demand from weather and other factors, including preventative maintenance events, etc… Expanded pipelines and storage also support price stability for consumers by balancing variable demand needs, with equivalent variable gas supplies. Moreover, expanded infrastructure will allow the US to fully capitalize on exporting LNG to high-demand Asian and European markets.

Constructing adequate storage such as underground salt caverns and depleted hydrocarbon reservoirs is also essential to stockpile excess supply during low-demand months. These stores can then provide a buffer during high-demand periods and winters, as well as absorb excess gas in the marketplace resulting from regional events in which demand is curtailed.

Addressing Supply Chain Challenges

While the shale boom has created abundant and affordable natural gas supplies, new infrastructure is required to efficiently transport this gas to the demand marketplace. It begins with ensuring appropriate gathering lines in production regions can transport gas from the wellhead to a processing or treating facility. Next, these facilities must have the capacity to condition the gas into a fungible and consumable natural gas product, meeting market specifications. Then, there must be capacity on long-haul transmission pipelines that deliver the gas to demand centers such as storage fields, power generation plants, industrial facilities, LNG plants, and local distribution companies that supply residential/commercial consumers. Without efficient capacity and transportation pathways originating from the production areas, consumers will experience bottlenecks, supply shortages, cold winters without sufficient heat, and pricing dislocation.

Economic and Environmental Impacts of Infrastructure Development

Beyond ensuring reliable and affordable energy access, building out new midstream natural gas infrastructure also stimulates substantial economic growth and facilitates environmentally-conscious power generation.

Job Creation and Economic Benefits

Constructing pipelines, storage facilities, processing plants, and export terminals generates significant direct and indirect jobs. Each stage of development and ongoing operation supports employment for welders, engineers, construction workers, truck drivers, operations personnel, inspectors, and more.

Moreover, natural gas transportation infrastructure investment produces multiplier effects across supply chain vendors along with local service jobs. Over 4 million total jobs across the US economy depend on the natural gas sector. Expanded infrastructure can create new employment opportunities nationally and for specific US states and counties hosting projects.

How Natural Gas Supports Environmental Sustainability

Natural Gas vs. Coal

In brief, beyond economic perks, natural gas also offers sustainability advantages over coal and other fossil fuels. When combusted, natural gas emits nearly 50% less carbon dioxide per unit of energy output compared to coal. This makes it a lower-carbon “bridge fuel” as renewable generation scales up over time.

Bridging Renewable Intermittency

Natural gas power plants also provide crucial stability and reliability to complement the intermittency issues with renewable sources like solar and wind. Gas peaker plants can rapidly cycle on and off to balance grids when renewable generation fluctuates or drops off unexpectedly.

Navigating Regulations and Policy in Gas Infrastructure Expansion

While the business and reliability incentives driving infrastructure investment are clear, new interstate natural gas pipelines and storage projects can face complex policy and regulatory challenges. Navigating the existing legal landscape and future legislation shaping interstate midstream development is crucial.

Impact of US Energy and Transportation Policies

Siting interstate natural gas pipelines in particular falls under Section 7 of the Natural Gas Act and requires federal approval from FERC, inclusive of environmental reviews. (Intrastate pipelines are not FERC-regulated.)

Pipeline developers must also contend with further state and local zoning restrictions, public utility commission oversight, and public hearings. Recent years have seen rising community concerns and legal actions blocking projects. Updating policy to streamline sustainable development while protecting lands and species is an ongoing debate.

The Future of Energy Infrastructure Legislation

Looking ahead, a major question surrounds whether federal policy updates can smooth interstate gas infrastructure advancement to match America’s demand trajectory. Achieving stakeholder alignment among industry, government, and environmental groups is difficult but necessary. Striking the right balance can support an “all of the above” energy strategy that is required with increasing renewable penetration.

Frequently Asked Questions

Why is there a record-high demand for natural gas in the US?

The record high demand for natural gas in the U.S. is due to its increasing use in power generation as a cleaner alternative to coal, its essential role in industrial processes, and its widespread use in residential and commercial heating. Additionally, the U.S.’s role as a major exporter of liquefied natural gas (LNG) has spurred further demand growth. As global environmental interests shift towards cleaner energy sources, the reliability and efficiency of natural gas, and advancements in extraction technologies will continue to highlight how important natural gas is to consumers.

What is midstream infrastructure and why is it crucial?

Midstream infrastructure in the natural gas industry refers to the facilities and processes involved in the transportation, storage, and processing of natural gas from its extraction sites to downstream distribution networks. This includes pipelines, storage facilities, compressor stations, measurement stations, processing plants, and other vital equipment. The midstream sector is crucial because it enables the efficient and safe transport of natural gas to various end-users, balances supply with demand through storage solutions, and ensures the gas meets the correct quality specifications for residential, commercial, industrial, and power generation uses.

How does natural gas infrastructure impact the economy and environment?

Natural gas infrastructure has a significant positive impact on the economy by creating jobs, stimulating industrial growth, and providing a reliable energy source that supports various economic activities. It generates employment opportunities in the construction, maintenance, and operations of infrastructure facilities. Environmentally, natural gas burns cleaner than coal and oil, releasing fewer greenhouse gases and pollutants, thus playing a key role in reducing carbon emissions and improving air quality.

What role does natural gas play in renewable energy integration?

Natural gas plays a complementary role in the integration of renewable energy. Due to the intermittent nature of renewable sources like solar and wind, natural gas power generation acts as reliable and constant base power generation, while also filling in the gaps when renewable energy is not available. It ensures a stable and continuous energy supply for US consumers, thus over time supporting the wider adoption and integration of renewables into the energy grid. Its flexibility and ability to quickly ramp up or down makes it ideal for balancing the variability in renewable energy generation.