Industrial Natural Gas Demand

2. The factors affecting EIA�s industrial natural gas consumption forecast When coefficients in the natural gas-weighted industrial production index add to 1, and all industrial subgroups have increasing production indices, the index will be positive. Natural gas-weighted industrial production index�which combines production indices for key industrial subgroups with the associated share of industrial natural gas demand. When coefficients in the natural gas-weighted industrial production index add to 1, and all industrial subgroups have increasing production indices, the index will be positive. Natural gas-weighted industrial production index�which combines production indices for key industrial subgroups with the associated share of industrial natural gas demand.

3. Data Sources When coefficients in the natural gas-weighted industrial production index add to 1, and all industrial subgroups have increasing production indices, the index will be positive. Natural gas-weighted industrial production index�which combines production indices for key industrial subgroups with the associated share of industrial natural gas demand. When coefficients in the natural gas-weighted industrial production index add to 1, and all industrial subgroups have increasing production indices, the index will be positive. Natural gas-weighted industrial production index�which combines production indices for key industrial subgroups with the associated share of industrial natural gas demand.

4. Overview: Natural Gas Consumption in the Industrial Sector Natural gas is an integral production component for many prominent industries in the United States. In 2006, natural gas deliveries to industrial consumers measured 6.75 trillion cubic feet (Tcf), or more than 30 percent of the natural gas consumed for the year.[1] By comparison, industrial natural gas consumption accounted for 37.4 percent of total U.S. natural gas consumption in 1997. In recent years, increased price volatility has prompted fuel switching and the relocation of domestic natural gas-consuming industries abroad. These factors have caused natural gas consumption in the industrial sector to decline 22.2 percent from 1997 to 2006 (8,510 Bcf in 1997 to 6,620 Bcf in 2006). [1] Energy Information Administration. Natural Gas Monthly: Annual Natural Gas Consumption by End Use. http://tonto.eia.doe.gov/dnav/ng/ng_cons_sum_dcu_nus_m.htm. April 2007. Natural gas is an integral production component for many prominent industries in the United States. In 2006, natural gas deliveries to industrial consumers measured 6.75 trillion cubic feet (Tcf), or more than 30 percent of the natural gas consumed for the year.[1] By comparison, industrial natural gas consumption accounted for 37.4 percent of total U.S. natural gas consumption in 1997. In recent years, increased price volatility has prompted fuel switching and the relocation of domestic natural gas-consuming industries abroad. These factors have caused natural gas consumption in the industrial sector to decline 22.2 percent from 1997 to 2006 (8,510 Bcf in 1997 to 6,620 Bcf in 2006). [1] Energy Information Administration. Natural Gas Monthly: Annual Natural Gas Consumption by End Use. http://tonto.eia.doe.gov/dnav/ng/ng_cons_sum_dcu_nus_m.htm. April 2007.

5. The Composition of Industrial Natural Gas Consumption: 2002 Manufacturing Energy Consumption Survey (MECS) EIA�s Manufacturing Energy Consumption Survey (MECS), which is completed every four years, examines the components of industrial natural gas consumption. EIA�s short-term industrial natural gas consumption forecast makes use of the MECS in order to identify key natural gas consuming industries as well as analyze changes within certain industrial subgroups. EIA�s Manufacturing Energy Consumption Survey (MECS), which is completed every four years, examines the components of industrial natural gas consumption. EIA�s short-term industrial natural gas consumption forecast makes use of the MECS in order to identify key natural gas consuming industries as well as analyze changes within certain industrial subgroups.

6. 2002 Manufacturing Energy Consumption Survey (MECS) Using the MECS, EIA has identified nine industrial subgroups that are critical to gauging natural gas consumption within the sector. Some data in the table has been adapted or estimated due to the change from SIC classification to NAICS classification between 1994 and 1998. In addition to the MECS, EIA has made use of industry production data, employment trends and other proxies for industrial activity (i.e. imports, exports) in order to better understand the changing energy requirements (and the role of natural gas) within these subgroups. The category for �Other�, which makes up a significant portion of industrial natural gas consumption, is the summation of many smaller industrial subgroups that are difficult to disaggregate and analyze. These subgroups include, but are not limited to: Plastics and Rubber Products (NAICS 326) (125 Bcf in 2002) Transportation Equipment (NAICS 336) (198 Bcf in 2002) and other chemical subgroups not captured in those listed (approximately 202 Bcf in 2002) . a Basic chemicals (NAICS 3251) in 1994 were adapted from SIC classification (SIC #2869 Industrial Organic Chemicals). b Nonmetallic mineral products (NAICS 327)in 1994 were adapted from SIC classification (SIC #32 Stone, Clay and Glass Products). c Resins and Plastic Materials (NAICS 3252) in 1998 does not include Synthetic Rubber (NAICS 325212) due to data omission. Using the MECS, EIA has identified nine industrial subgroups that are critical to gauging natural gas consumption within the sector. Some data in the table has been adapted or estimated due to the change from SIC classification to NAICS classification between 1994 and 1998. In addition to the MECS, EIA has made use of industry production data, employment trends and other proxies for industrial activity (i.e. imports, exports) in order to better understand the changing energy requirements (and the role of natural gas) within these subgroups. The category for �Other�, which makes up a significant portion of industrial natural gas consumption, is the summation of many smaller industrial subgroups that are difficult to disaggregate and analyze. These subgroups include, but are not limited to: Plastics and Rubber Products (NAICS 326) (125 Bcf in 2002) Transportation Equipment (NAICS 336) (198 Bcf in 2002) and other chemical subgroups not captured in those listed (approximately 202 Bcf in 2002) . a Basic chemicals (NAICS 3251) in 1994 were adapted from SIC classification (SIC #2869 Industrial Organic Chemicals). b Nonmetallic mineral products (NAICS 327)in 1994 were adapted from SIC classification (SIC #32 Stone, Clay and Glass Products). c Resins and Plastic Materials (NAICS 3252) in 1998 does not include Synthetic Rubber (NAICS 325212) due to data omission.

7. Natural gas-weighted Industrial Production Index results with various MECS demand shares EIA�s short-term industrial natural gas consumption forecast is based on industrial production indices for various industrial subgroups including: Food (NAICS 311) Paper (NAICS 322) Petroleum and Coal Products (NAICS 324) Chemicals (minus Pharm.) Nonmetallic Mineral Products (NAICS 327) Primary Metals (NAICS 331) Production indices are provided by Global Insight and are based on the Federal Reserve�s Industrial Production Database. The share of natural gas use in each industrial subgroup is paired with the associated production index in order to generate a natural-gas weighted industrial production index. Different MECS shares (1994, 1998, 2002) are used in the graph above to show relative changes in the natural gas-weighted industrial production index. Although small changes are apparent, the trend is relatively consistent. For each index the natural gas shares are calibrated to ssum to 1.EIA�s short-term industrial natural gas consumption forecast is based on industrial production indices for various industrial subgroups including: Food (NAICS 311) Paper (NAICS 322) Petroleum and Coal Products (NAICS 324) Chemicals (minus Pharm.) Nonmetallic Mineral Products (NAICS 327) Primary Metals (NAICS 331) Production indices are provided by Global Insight and are based on the Federal Reserve�s Industrial Production Database. The share of natural gas use in each industrial subgroup is paired with the associated production index in order to generate a natural-gas weighted industrial production index. Different MECS shares (1994, 1998, 2002) are used in the graph above to show relative changes in the natural gas-weighted industrial production index. Although small changes are apparent, the trend is relatively consistent. For each index the natural gas shares are calibrated to ssum to 1.

8. The Puzzle: Industrial Natural Gas Demand ? Industrial Production Index Using the natural gas consumption shares derived from the 2002 MECS, the graph above compares the natural gas-weighted industrial index with industrial natural gas demand. Since 2002, the trend of industrial production derived from MECS-based demand shares and the associated production indices provided by Global Insight has been increasing. However, over the same period, industrial natural gas consumption has been consistently declining. Using the natural gas consumption shares derived from the 2002 MECS, the graph above compares the natural gas-weighted industrial index with industrial natural gas demand. Since 2002, the trend of industrial production derived from MECS-based demand shares and the associated production indices provided by Global Insight has been increasing. However, over the same period, industrial natural gas consumption has been consistently declining.

9. 2002 Manufacturing Energy Consumption Survey (MECS) There have been three steps taken to improve EIA�s short-term forecast of industrial natural gas consumption. STEP 1: Update and revise gas-weighted industrial production index based on changing composition of industrial natural gas use. The number of industrial subgroups represented in the natural gas-weighted industrial production index has been expanded from six to nine. sic: Standard Industrial Classification qsic: Original natural gas-weighted production index shares. qsic2: Same as original �qsic�, but with �Chemicals� share shifted to �Basic Chemicals (minus Pharm.)�. Qsic_New: Expanded natural gas-weighted production index shares to include nine industrial subgroups (chemical industry break-out). There have been three steps taken to improve EIA�s short-term forecast of industrial natural gas consumption. STEP 1: Update and revise gas-weighted industrial production index based on changing composition of industrial natural gas use. The number of industrial subgroups represented in the natural gas-weighted industrial production index has been expanded from six to nine. sic: Standard Industrial Classification qsic: Original natural gas-weighted production index shares. qsic2: Same as original �qsic�, but with �Chemicals� share shifted to �Basic Chemicals (minus Pharm.)�. Qsic_New: Expanded natural gas-weighted production index shares to include nine industrial subgroups (chemical industry break-out).

10. Comparison of STEO Gas-weighted Production Indices STEP 2: Benchmark industrial natural gas demand to new gas-weighted industrial production index and forecast industrial gas consumption based on the changing parameters within the new gas-weighted index. Both �qsic2� and �qsic_New� provide a significantly better representation of industrial natural gas demand prior to 2002. However, despite the expanded version of EIA�s natural gas-weighted industrial production index, there is no significant change in the magnitude or the trend of the index post-2002. Analyses of three prominent natural gas consuming industries�petroleum and coal products, agricultural chemicals, and primary metals�indicates that the associated production indices may no longer provide an accurate representation of natural gas use in that industry. Petroleum and Coal Products (NAICS 324), Agricultural Chemicals (NAICS 3253), and Primary Metals (NAICS 331) have recently exhibited significant fundamental shifts in natural gas consumption. While these three subgroups accounted for about 32.4 percent of total industrial natural gas consumption, fuel substitution, off-shoring production processes and efficiency gains have dramatically effected the energy use in each of these subgroups. STEP 2: Benchmark industrial natural gas demand to new gas-weighted industrial production index and forecast industrial gas consumption based on the changing parameters within the new gas-weighted index. Both �qsic2� and �qsic_New� provide a significantly better representation of industrial natural gas demand prior to 2002. However, despite the expanded version of EIA�s natural gas-weighted industrial production index, there is no significant change in the magnitude or the trend of the index post-2002. Analyses of three prominent natural gas consuming industries�petroleum and coal products, agricultural chemicals, and primary metals�indicates that the associated production indices may no longer provide an accurate representation of natural gas use in that industry. Petroleum and Coal Products (NAICS 324), Agricultural Chemicals (NAICS 3253), and Primary Metals (NAICS 331) have recently exhibited significant fundamental shifts in natural gas consumption. While these three subgroups accounted for about 32.4 percent of total industrial natural gas consumption, fuel substitution, off-shoring production processes and efficiency gains have dramatically effected the energy use in each of these subgroups.

11. Petroleum and Coal Products (NAICS 324) Petroleum refineries (NAICS 324110) are the largest source of energy consumption in the United States and were responsible for 799 Bcf, or 94 percent, of natural gas consumption in this industrial subgroup.[1] High levels of heat are required by refineries to produce finished petroleum products like motor gasoline, aviation fuel, distillate and residual fuel oil.[2] The majority of energy consumed at petroleum refineries is generated onsite, with natural gas accounting for roughly 15 percent the total energy use.[3] There has been a notable decline in natural gas consumption at petroleum refineries from 1998 through 2005 reported by the EIA-820 survey. The drop in natural gas consumption correlates with the onset of deregulation and an increase in natural gas prices. Since 2000, the cost of purchased fuels has nearly doubled in the refining sector.[4] As the price of natural gas began to rise larger refiners utilized less expensive substitutes for their production processes.  [1] U.S. Census Bureau. �Annual Manufacturers Survey (2005)�. November 2006. http://www.census.gov/prod/2006pubs/am0531gs1.pdf. [1] Energy Information Administration. �Petroleum Industry Analysis Brief.� January 2004. http://www.eia.doe.gov/emeu/mecs/iab98/petroleum/index.html [2] Energy Information Administration. �Petroleum Industry Analysis Brief.� January 2004. http://www.eia.doe.gov/emeu/mecs/iab98/petroleum/index.html [3] Energy Information Administration. �Petroleum Industry Analysis Brief.� January 2004. http://www.eia.doe.gov/emeu/mecs/iab98/petroleum/index.html [4] U.S. Census Bureau. �Annual Manufacturers Survey (2005)�. November 2006. http://www.census.gov/prod/2006pubs/am0531gs1.pdf. Petroleum refineries (NAICS 324110) are the largest source of energy consumption in the United States and were responsible for 799 Bcf, or 94 percent, of natural gas consumption in this industrial subgroup.[1] High levels of heat are required by refineries to produce finished petroleum products like motor gasoline, aviation fuel, distillate and residual fuel oil.[2] The majority of energy consumed at petroleum refineries is generated onsite, with natural gas accounting for roughly 15 percent the total energy use.[3] There has been a notable decline in natural gas consumption at petroleum refineries from 1998 through 2005 reported by the EIA-820 survey. The drop in natural gas consumption correlates with the onset of deregulation and an increase in natural gas prices. Since 2000, the cost of purchased fuels has nearly doubled in the refining sector.[4] As the price of natural gas began to rise larger refiners utilized less expensive substitutes for their production processes. [1] U.S. Census Bureau. �Annual Manufacturers Survey (2005)�. November 2006. http://www.census.gov/prod/2006pubs/am0531gs1.pdf. [1] Energy Information Administration. �Petroleum Industry Analysis Brief.� January 2004. http://www.eia.doe.gov/emeu/mecs/iab98/petroleum/index.html [2] Energy Information Administration. �Petroleum Industry Analysis Brief.� January 2004. http://www.eia.doe.gov/emeu/mecs/iab98/petroleum/index.html [3] Energy Information Administration. �Petroleum Industry Analysis Brief.� January 2004. http://www.eia.doe.gov/emeu/mecs/iab98/petroleum/index.html [4] U.S. Census Bureau. �Annual Manufacturers Survey (2005)�. November 2006. http://www.census.gov/prod/2006pubs/am0531gs1.pdf.

12. Petroleum and Coal Products: Petroleum Refineries Despite the recent decline in natural gas consumption at U.S. refineries, crude runs and total fuel consumption have remained relatively unchanged. While the drop in natural gas use seems to understate activity at U.S. refineries, the Global Insight production index for Petroleum and Coal Products (NAICS 324)�the balance of which is accounted for by petroleum refineries (NAICS 324110)�seems to overstate refinery activity in the U.S.Despite the recent decline in natural gas consumption at U.S. refineries, crude runs and total fuel consumption have remained relatively unchanged. While the drop in natural gas use seems to understate activity at U.S. refineries, the Global Insight production index for Petroleum and Coal Products (NAICS 324)�the balance of which is accounted for by petroleum refineries (NAICS 324110)�seems to overstate refinery activity in the U.S.

13. 16 Refineries Account for Large Portion of Decline in Fuel Consumption According to EIA data, just 16 refineries accounted for about 86 percent (164 Bcf) of the 190.8 Bcf decline from 1998 to 2005. Where possible, refiner�s used refinery gas and petroleum gases as substitutes for the more expensive natural gas. Since natural gas use began to fall and tighter restrictions on sulfur emissions came about, steam purchased by refineries from combined heat and power units more than doubled between 1998 and 2006.[1]  Do efficiency gains alone account for the sustained level of crude runs despite the decline in natural gas (and total energy) consumption at refineries? [1] Energy Information Administration. �Petroleum Supply Annual: Fuel Consumed at Refineries by PAD District� (Table 47 1996-2004; Table 12 2005-2006). http://www.eia.doe.gov/oil_gas/petroleum/data_publications/refinery_capacity_data/refcap_historical.html. According to EIA data, just 16 refineries accounted for about 86 percent (164 Bcf) of the 190.8 Bcf decline from 1998 to 2005. Where possible, refiner�s used refinery gas and petroleum gases as substitutes for the more expensive natural gas. Since natural gas use began to fall and tighter restrictions on sulfur emissions came about, steam purchased by refineries from combined heat and power units more than doubled between 1998 and 2006.[1] Do efficiency gains alone account for the sustained level of crude runs despite the decline in natural gas (and total energy) consumption at refineries? [1] Energy Information Administration. �Petroleum Supply Annual: Fuel Consumed at Refineries by PAD District� (Table 47 1996-2004; Table 12 2005-2006). http://www.eia.doe.gov/oil_gas/petroleum/data_publications/refinery_capacity_data/refcap_historical.html.

14. Agricultural Chemicals (NAICS 3253) Anhydrous ammonia (NH3) utilizes atmospheric nitrogen (N2) and methane as feedstocks for the production of most commercial fertilizers. In fact, about 90 percent of U.S. ammonia production in 2006 was dedicated to manufacturing fertilizers.[1] Table 8 illustrates the significance of nitrogenous fertilizers (NAICS 325311) and ammonia in the broader industry group of agricultural chemicals (NAICS 3253). Production of anhydrous ammonia takes place under high levels of heat (400�-650� C) and pressure, combining nitrogen from the atmosphere with pure hydrogen obtained from methane. Consumption of natural gas in the fertilizer industry differs from the role of gas in the petrochemical industry because ammonia production relies on dry natural gas both as a feedstock (methane) and a fuel to generate heat. The combination of fuel and feedstock methane used for the production of agricultural chemicals (NAICS 3253) accounts for roughly 22 percent of the natural gas consumed in the chemicals (NAICS 325) sector. In 2006 U.S. ammonia producers operated at roughly 78 percent of their total capacity, with 56 percent of total U.S. ammonia production located in Louisiana, Oklahoma and Texas.[2] The three primary components of fertilizer derived from ammonia are anhydrous ammonia, ammonium nitrate and urea. Corresponding with the steep decline in the spot price for natural gas at the Henry Hub (which averaged $13.05 per mmBtu in December 2005 and $6.21 per mmBtu in June 2006), ammonia prices dropped from $360 per short ton at the beginning of 2006 to $244 per short ton in June 2006. Taken together, production of these compounds was roughly 11.421 million short tons in 2006, 0.240 million short tons (or slightly more than 2 percent) above the amount produced in 2005.[3] [1] U.S. Geological Service. Minerals Commodity Statistics and Information: Nitrogen, 2006. http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/nitromcs07.pdf. [2] U.S. Geological Service. Minerals Commodity Statistics and Information: Nitrogen, 2006. http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/nitromcs07.pdf. [3] U.S. Census Bureau. Fertilizers and Related Chemicals: Fourth Quarter 2006. http://www.census.gov/industry/1/mq325b064.pdf. Issued March 2007. Anhydrous ammonia (NH3) utilizes atmospheric nitrogen (N2) and methane as feedstocks for the production of most commercial fertilizers. In fact, about 90 percent of U.S. ammonia production in 2006 was dedicated to manufacturing fertilizers.[1] Table 8 illustrates the significance of nitrogenous fertilizers (NAICS 325311) and ammonia in the broader industry group of agricultural chemicals (NAICS 3253). Production of anhydrous ammonia takes place under high levels of heat (400�-650� C) and pressure, combining nitrogen from the atmosphere with pure hydrogen obtained from methane. Consumption of natural gas in the fertilizer industry differs from the role of gas in the petrochemical industry because ammonia production relies on dry natural gas both as a feedstock (methane) and a fuel to generate heat. The combination of fuel and feedstock methane used for the production of agricultural chemicals (NAICS 3253) accounts for roughly 22 percent of the natural gas consumed in the chemicals (NAICS 325) sector. In 2006 U.S. ammonia producers operated at roughly 78 percent of their total capacity, with 56 percent of total U.S. ammonia production located in Louisiana, Oklahoma and Texas.[2] The three primary components of fertilizer derived from ammonia are anhydrous ammonia, ammonium nitrate and urea. Corresponding with the steep decline in the spot price for natural gas at the Henry Hub (which averaged $13.05 per mmBtu in December 2005 and $6.21 per mmBtu in June 2006), ammonia prices dropped from $360 per short ton at the beginning of 2006 to $244 per short ton in June 2006. Taken together, production of these compounds was roughly 11.421 million short tons in 2006, 0.240 million short tons (or slightly more than 2 percent) above the amount produced in 2005.[3]

15. Agricultural Chemicals: U.S. Ammonia Production Historically, U.S. ammonia production has been closely correlated with the production of agricultural chemicals. This trend has changed in recent years. From 2002 to 2005, ammonia production has declined about 13.5 percent. [1] However, the Global Insight Production Index for Agricultural Chemicals (NAICS 3253) has increased more than 15 percent over the same period. [1] U.S. Geological Service. Minerals Commodity Statistics and Information: Nitrogen, 2006. http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/nitromcs07.pdf. Historically, U.S. ammonia production has been closely correlated with the production of agricultural chemicals. This trend has changed in recent years. From 2002 to 2005, ammonia production has declined about 13.5 percent. [1] However, the Global Insight Production Index for Agricultural Chemicals (NAICS 3253) has increased more than 15 percent over the same period. [1] U.S. Geological Service. Minerals Commodity Statistics and Information: Nitrogen, 2006. http://minerals.usgs.gov/minerals/pubs/commodity/nitrogen/nitromcs07.pdf.

16. Agricultural Chemicals: Ammonia Imports Rising natural gas prices have induced a structural shift in ammonia production and affected the U.S. fertilizer industry. Recent import data reported by the U.S. Census Bureau indicates that domestic imports of ammonia have risen by nearly 40 percent from 2001 to 2005. Furthermore, through the first half of 2006 ammonia imports as a percent of total consumption were about 44.3 percent, up from 33.9 percent in 2002.[1] The price of natural gas in the U.S. relative to other regions of the world has created an incentive for ammonia manufacturers to look outside the United States for lower fuel prices to compliment their operations. Rising ammonia production overseas has decreased the demand for domestically produced ammonia and the associated natural gas consumption. As a result, imports have created a noticeable disconnect in the traditional relationship between domestic fertilizer production and demand for natural gas within the fertilizer industry. [1] U.S. Census Bureau. Fertilizers and Related Chemicals: Fourth Quarter2006. http://www.census.gov/industry/1/mq325b064.pdf. Issued March 2007.Rising natural gas prices have induced a structural shift in ammonia production and affected the U.S. fertilizer industry. Recent import data reported by the U.S. Census Bureau indicates that domestic imports of ammonia have risen by nearly 40 percent from 2001 to 2005. Furthermore, through the first half of 2006 ammonia imports as a percent of total consumption were about 44.3 percent, up from 33.9 percent in 2002.[1] The price of natural gas in the U.S. relative to other regions of the world has created an incentive for ammonia manufacturers to look outside the United States for lower fuel prices to compliment their operations. Rising ammonia production overseas has decreased the demand for domestically produced ammonia and the associated natural gas consumption. As a result, imports have created a noticeable disconnect in the traditional relationship between domestic fertilizer production and demand for natural gas within the fertilizer industry.

17. Primary Metals (NAICS 331): Iron and Steel Mills Primary metals (NAICS 331) accounted for about 11 percent of total industrial natural gas consumption in 2002.[1] Natural gas consumption within the sector was led by iron and steel mills (NAICS 3311), which made up more than half of the sub-industry total. According to the American Iron and Steel Institute (AISI), natural gas consumption within the sector declined more than 8 percent from 1998 to 2005. [1] Energy Information Administration. Manufacturing Energy Consumption Survey (MECS), 2002. http://www.eia.doe.gov/emeu/mecs/contents.html. Primary metals (NAICS 331) accounted for about 11 percent of total industrial natural gas consumption in 2002.[1] Natural gas consumption within the sector was led by iron and steel mills (NAICS 3311), which made up more than half of the sub-industry total. According to the American Iron and Steel Institute (AISI), natural gas consumption within the sector declined more than 8 percent from 1998 to 2005.

18. Primary Metals (NAICS 331): Iron and Steel Mills The consumption trend from 1996 to 2002 was fairly consistent, with the exception of 1999 when natural gas consumption at blast furnaces increased more than 50 percent from the previous year according to AISI data. The increase in 1999 consumption was followed by a corresponding decline in 2000 of roughly the same amount. Over the period from 1998 to 2005, Global Insight�s industrial production dropped about 6 percent for primary metals and about 1 percent for iron and steel mills. Aside from the 1999 consumption spike, Global Insight�s production index for primary metals corresponds reasonably well with the natural gas consumption index for iron and steel mills derived from statistics provided by AISI. The consumption trend from 1996 to 2002 was fairly consistent, with the exception of 1999 when natural gas consumption at blast furnaces increased more than 50 percent from the previous year according to AISI data. The increase in 1999 consumption was followed by a corresponding decline in 2000 of roughly the same amount. Over the period from 1998 to 2005, Global Insight�s industrial production dropped about 6 percent for primary metals and about 1 percent for iron and steel mills. Aside from the 1999 consumption spike, Global Insight�s production index for primary metals corresponds reasonably well with the natural gas consumption index for iron and steel mills derived from statistics provided by AISI.

19. Comparison of STEO Gas-weighted Production Indices From 2002 through the forecast period (which runs through 2008) the production index for each industrial subgroups (in addition to those examined here) is increasing. However, as displayed earlier, total industrial natural gas consumption over this period is declining. As long as the coefficients in EIA�s natural gas-weighted industrial production index sum to 1, and the associated production indices used in the equation remain positive, then the resulting industrial production index will provide support for rising natural gas use. In order to more accurately represent industrial natural gas consumption, two alternatives may be used. 1.) Alter industrial production indices to reflect changes in actual production data (red line in graph above). 2.) Alter the share of natural gas use so coefficients in equation sum to <1. A third option might be to use another measure of industrial output (e.g. employment, value-added, etc.), but so far none of these has given a better or more credible result than the production indices.From 2002 through the forecast period (which runs through 2008) the production index for each industrial subgroups (in addition to those examined here) is increasing. However, as displayed earlier, total industrial natural gas consumption over this period is declining. As long as the coefficients in EIA�s natural gas-weighted industrial production index sum to 1, and the associated production indices used in the equation remain positive, then the resulting industrial production index will provide support for rising natural gas use. In order to more accurately represent industrial natural gas consumption, two alternatives may be used. 1.) Alter industrial production indices to reflect changes in actual production data (red line in graph above). 2.) Alter the share of natural gas use so coefficients in equation sum to <1. A third option might be to use another measure of industrial output (e.g. employment, value-added, etc.), but so far none of these has given a better or more credible result than the production indices.

20. Adjusted Production Index: Petroleum and Coal Products (NAICS 324) The adjustment to the production series for Petroleum and Coal Products (NAICS 324) utilizes data from EIA�s 820 Survey on natural gas production and combines it with the growth trend in the Global Insight production series for the forecasted years.The adjustment to the production series for Petroleum and Coal Products (NAICS 324) utilizes data from EIA�s 820 Survey on natural gas production and combines it with the growth trend in the Global Insight production series for the forecasted years.

21. Adjusted Production Index: Agricultural Chemicals (NAICS 3253) The adjustment to the production series for Agricultural Chemicals (NAICS 3253) utilizes data on U.S. ammonia production from the U.S. Census Bureau and combines it with the growth trend in the Global Insight production series for the forecasted years. The adjustment to the production series for Agricultural Chemicals (NAICS 3253) utilizes data on U.S. ammonia production from the U.S. Census Bureau and combines it with the growth trend in the Global Insight production series for the forecasted years.

22. Adjusted Production Index: Primary Metals (NAICS 331) The adjustment to the production series for Primary Metals (NAICS 331) utilizes data on natural gas consumption for iron and steel manufacturing from the American Institute of Iron and Steel and combines it with the growth trend in the Global Insight production series for the forecasted years. The adjustment to the production series for Primary Metals (NAICS 331) utilizes data on natural gas consumption for iron and steel manufacturing from the American Institute of Iron and Steel and combines it with the growth trend in the Global Insight production series for the forecasted years.

23. Next Steps: STEO Gas-weighted Industrial Production Index Questions?Questions?