Several of U.S. industry’s largest energy customers are considering ambitious decarbonization plans. Dow Chemical, ExxonMobil, US Steel, and others have made pledges to reach net zero by 2050. Among possible strategies to achieve these goals could be carbon sequestration, efficiency improvements, and electrification of processes. Most likely, the pursuit of emissions reductions will mean that these firms burn less fossil fuel in the future.
Natural gas currently provides more energy to the U.S. industrial sector than any other primary energy source, so gas demand could be risked if these environmental, social, and governance (ESG) initiatives are realized. Here we examine the largest industrial customers for U.S. fuel commodities and their ESG commitments.
Feedstocks are one portion of demand that may be insulated from energy transition risk. As a feedstock, gas is used for its chemical properties rather than its energy content. While it is possible that green hydrogen or another resource could displace some feedstock demand, it is more likely that carbon capture would allow the use of feedstock to continue with lower emissions.
Regardless, feedstock uses only account for 11% of gas consumption by U.S. industry. A much larger share is burned as fuel, representing greater than 71% of the gas consumed by industry. This portion of demand could be at greater risk of energy transition as technology improves efficiency or enables electrification.
Certain industries stand out as consuming the most natural gas as fuel. Most of the gas burned for industrial fuel is consumed within five industry groupings:
Together, these industries consumed 12.7 Bcf/d of fuel in 2018. While a substantial amount of gas is consumed in non-manufacturing industries, including agriculture, mining, and construction, detailed data is lacking on energy use in these other industries. BTU has focused this analysis on manufacturing industries, where enough data is available to model how electrification may displace other forms of energy.
To analyze the potential for gas to be displaced across these core manufacturing industries, BTU used EPA FLIGHT emissions data to generate a sample of 27 companies. FLIGHT data records greenhouse gas emissions from individual facilities, with emissions from the combustion of fuel disaggregated from other forms of emission such as off-gases. This dataset only reflects large facilities and does not provide a breakdown by fuel type.
By isolating emissions from the combustion of fuels, BTU used this dataset as a proxy to estimate which companies consumed the most fuel within each industry grouping. For each industry grouping, the three companies with the largest share of combustion emissions in FLIGHT were selected. In the case of the Petrochemical and Refined Oil Products segments, a fourth company was added to reflect the relative scale of these groups in overall gas demand.
Combined, fuel combustion at plants owned by these 27 companies represents 43% of the manufacturing sector’s combustion emissions reported through FLIGHT. BTU also cross-referenced data for interstate gas pipelines and found that deliveries to these companies represented 35% of direct deliveries to manufacturing customers. Climate initiatives from these 27 companies could therefore be expected to meaningfully influence gas demand in the future.
Of these 27 companies, a total of 15 have made commitments to achieve net zero or carbon neutral emissions by 2050. Only three have refrained from making any commitment to emissions reduction. In BTU’s sample of interstate pipeline flows, the 15 companies with strong commitments represent a far greater share of gas deliveries than the 12 without those commitments. ESG pressure is surely most acute among large, public, and especially energy-intensive operators, and may not be influential for many smaller, private operators. However, if just the 15 companies mentioned above can fulfill their climate commitments, this alone could appreciably impact industrial demand for gas.
The implications of ESG commitments such as these remain unclear. There is a possibility that ESG commitments may lead to a reshuffling of “dirty” assets in coming years, such that energy-intensive facilities move toward private ownership or relocate geographically. Blue hydrogen and carbon capture and sequestration, core strategies in many sustainability plans, could be offsetting factors that would support stronger long term gas demand in U.S. industry. In depth analysis of energy transition trends, particularly with regards to electrification in the manufacturing industry, is available in BTU’s recently published Long Term Gas Outlook.
BTU Analytics is a FactSet Company. This article was originally published on the BTU Analytics website.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.