1. Slide title Industrial Natural Gas Demand

2. Slide title The factors affecting EIA’s industrial natural gas consumption forecast  GDP;  Employment;  Prices;  Weather;  Natural gas-weighted industrial production index. EXAMPLE: Food(0.1091) + Paper(0.0945) + … + Fabricated Metal Products(0.0507) PROBLEM: Industrial natural gas consumption has declined while all proxies for industrial production have increased.

3. Slide title Data Sources  U.S. Census Bureau. Current Industrial Reports;  U.S. Census Bureau. Annual Manufacturers Survey;  U.S. Geological Service. Minerals Commodity Statistics and Information;  U.S. Bureau of Economic Analysis;  American Iron and Steel Institute (AISI);  EIA Natural Gas Monthly;  EIA Manufacturing Energy Consumption Survey (MECS);  EIA Petroleum Supply Annual;  EIA -820 Survey: Fuels Consumed at Refineries.

4. Slide title Overview: Natural Gas Consumption in the Industrial Sector Industrial sector accounts for largest percentage of total U.S. natural gas consumption. Business operations of industrial sector consumers are sensitive to large, sustained swings in the price of natural gas. Annual average price to industrial consumers was $3.59/MMCF in 1997 and $7.88/MMCF in 2006 (nominal). U.S. Natural Gas Consumption by Sector, 2006

5. Slide title The Composition of Industrial Natural Gas Consumption: 2002 Manufacturing Energy Consumption Survey (MECS)

6. Slide title 2002 Manufacturing Energy Consumption Survey (MECS) NAICS Code Industry Subgroup 1994 Natural Gas Consumption (Bcf) 1998 Natural Gas Consumption (Bcf) 2002 Natural Gas Consumption (Bcf) 311Food613553567 322Paper558570490 324Petroleum and Coal Products788981854 3251Basic Chemicals1037ª10111084 3252Resins and Plastic Materials326252 c 463 3253Agricultural Chemicals602557501 327Nonmetallic Mineral Products419 b 433411 331Primary Metals787908686 332Fabricated Metal Products214235204 Other129117311038 TOTAL6,6357,2316,298

7. Slide title Natural gas-weighted Industrial Production Index results with various MECS demand shares

8. Slide title The Puzzle: Industrial Natural Gas Demand ≠ Industrial Production Index

9. Slide title 2002 Manufacturing Energy Consumption Survey (MECS) NAICS Code Industry Subgroup qsic* Coefficient qsic2 Coefficient New qsic Coefficient 311Food0.1091 0.1083 322Paper0.0945 0.0961 324Petroleum and Coal Products0.1646 0.1539 325Chemicals0.4208 3251Basic Chemicals (minus Pharmaceuticals)0.42080.1904 3252Resins and Plastic Products0.0918 3253Agricultural Chemicals0.0979 327Nonmetallic Mineral Products0.0791 0.0836 331Primary Metals0.1320 0.1270 332Fabricated Metal Products0.0507 1.00 *Standard Industrial Classification (SIC)

10. Slide title Comparison of STEO Gas-weighted Production Indices

11. Slide title Petroleum and Coal Products (NAICS 324) Petroleum and coal products (NAICS 324) accounted for about 14 percent of total industrial natural gas demand (MECS, 2002).  Petroleum refineries (NAICS 324110) were responsible for 799 Bcf, or 94 percent, of natural gas consumption in this subgroup (MECS, 2002).  Natural gas consumption at petroleum refineries (NAICS 324110) declined more than 17 percent from 2000 to 2006.

12. Slide title Petroleum and Coal Products: Petroleum Refineries

13. Slide title 16 Refineries Account for Large Portion of Decline in Fuel Consumption

14. Slide title Agricultural Chemicals (NAICS 3253) Agricultural chemicals* (NAICS 3253) accounted for roughly 8 percent of total industrial natural gas (MECS, 2002).  22 percent of the natural gas consumed in the chemicals (NAICS 325) subsector (MECS, 2002).  Nitrogenous fertilizers make up 94 percent of gas consumption within the agricultural chemicals sector (MECS, 2002).  About 90 percent of U.S. ammonia production in 2006 was dedicated to manufacturing nitrogenous fertilizers (U.S. Census). *Agricultural chemicals require the dual use of natural gas as a fuel and feedstock.

15. Slide title Agricultural Chemicals: U.S. Ammonia Production

16. Slide title Agricultural Chemicals: Ammonia Imports Source: U.S. Census Bureau. Current Industrial Reports: Fertilizers and Related Chemicals.

17. Slide title Primary Metals (NAICS 331): Iron and Steel Mills Primary metals (NAICS 331) accounted for roughly 11 percent of total industrial natural gas (MECS, 2002).  58 percent of the natural gas consumption for primary metals was by iron and steel mills (NAICS 3311).  Natural gas consumption for iron and steel production declined more than 8 percent from 1998 to 2005 (American Iron and Steel Institute).

18. Slide title Primary Metals (NAICS 331): Iron and Steel Mills

19. Slide title Comparison of STEO Gas-weighted Production Indices

20. Slide title Adjusted Production Index: Petroleum and Coal Products (NAICS 324)

21. Slide title Adjusted Production Index: Agricultural Chemicals (NAICS 3253)

22. Slide title Adjusted Production Index: Primary Metals (NAICS 331)

23. Slide title Next Steps: STEO Gas-weighted Industrial Production Index Is there a better metric or proxy for industrial energy (natural gas) consumption? Based on the changing composition of industrial natural gas consumption, how should the coefficients of the various subgroups be treated? Have the prominent industrial sub-sectors been identified? How can revisions to this index improve the efficiency and effectiveness of EIA’s short-term forecasting?