Fuel Management

Ethanol Boom Could Boost U.S. Natural Gas Prices

April 25, 2007

NEW YORK – The U.S. ethanol boom could push natural gas prices even higher as the explosion of new distilleries and a soaring corn crop raise industrial and agricultural demand, according to Reuters. Ethanol refineries tend to use natural gas-fueled boilers, and natural gas is also used in the production of fertilizer for corn, which is the main feedstock for ethanol in North America.Experts said that the ethanol boom could add roughly one percent to U.S. natural gas demand within a year and a half, magnifying an already tight balance between production and rising consumption from homes, businesses, and power plants.Ethanol production increased by 25 percent last year and is set to rise even more in the next few years as the administration of President George W. Bush offers farmers millions of dollars in incentives to produce the fuel in an attempt to cut imports of foreign oil. The United States already has about 116 ethanol distilleries, with 78 plants under construction and seven undergoing expansion. If all the new plants and expansions come on line, total capacity will be above 12 billion gallons per year, according to the Renewable Fuels Association.Natural gas prices were nearly $7.60 per million British thermal units last week, up nearly 9 percent from last year’s average, though below the 2005 record annual average of $8.81 when a hot summer and hurricane damage cut into stockpiles, according to Reuters. Gas prices this year are expected to average seven percent higher than last year as growth in domestic production and imports fails to keep up with rising demand. U.S. dry gas production is expected to rise 1.4 percent this year to 18.74 trillion cubic feet, but will be below levels hit a decade ago, according to the federal Energy Information Administration. And after rising to an expected 19.41 tcf in 2008, U.S. gas production is expected to be steady to lower for the next three years. Meanwhile, U.S. demand is expected to rise 2.5 percent to 22.40 tcf this year and increase steadily for years.

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