Pandemic Problems Related to Forecasting Natural Gas Consumption

Abstract

There are many macroeconomic and atmospheric factors affecting the development of natural gas consumption forecasts. Recently, another factor has emerged that causes some problems in developing an accurate forecast. COVID-19 introduced many perturbations. It makes previous long-term natural gas consumption forecasts obsolete. This chapter presents the process of natural gas consumption in the U.S. and the implications that a pandemic will have on the forecasting process. Forecasts were developed using RStudio. The results clearly show the impact of the pandemic on the consumption of gaseous fuel by each area of life.

1. Introduction

Pandemics are not a new phenomenon in human history, from time to time crises occur in world history. An example of such a pandemic is the coronavirus that shocked humanity. It is the kind of shock that causes a global economic crisis. The coronavirus also introduced some shock in forecasting energy consumption, including natural gas. Natural gas consumption forecasts during a pandemic, even those for the shortest periods, are subject to large error. The problem with forecasting gas consumption is the inability to predict government decisions on restrictions and the lack of reliable estimates of the long-term forecast of the number of illnesses and the lack of predictions of people’s behavior in following proper instructions.

This paper presents a coronavirus pandemic and its effects on natural gas consumption forecasting in the United States.

2. Natural gas consumption in the world

The International Energy Agency, in its 2021 Q1 Quarterly Report, estimates that global gas demand fell by 2.5% or 100 billion cubic meters (bcm) in 2020, the largest decline on record. This was due to slowing economies, resulting in lower energy intake. The other interesting development in 2020 was that natural gas prices reached historic lows and had high volatility [1]. However, the report presents the positive part, that is, it forecasts that global natural gas demand will grow by 2.8% in 2021 (about 110 bcm), slightly above the 2020 decline, allowing a return to 2019 levels.

3. Natural gas consumption in U.S.

U.S. Energy Information Administration, Agency says it will be some time before energy consumption returns to normal [2]. The speed of economic recovery, advances in technology, changes in trade flows, and energy incentives will determine what sources the United States uses to produce and consume energy in the future [3]. Figure 1 shows a forecast of natural gas consumption with an increasing outlook. The US EIA (Figure 2) forecasts that natural gas will continue to play an important role in the industry.

Figure 1.

EIA’s AEO2021 explores the impact of COVID-19 on the U.S. energy mix through 2050 (quadrillion British thermal units).

Figure 2.

US EIA lifts forecasts for 2021–2022 natural gas and power consumption.

Natural gas prices at the Henry Hub [4], which are a reference for U.S. natural gas prices, show that natural gas prices for the pandemic period are the lowest. Table 1 shows forecasts using neural networks indicate that natural gas prices will increase. Table 2 also indicates that natural gas supplies will be on an increasing trend. At the same time, Table 3 shows that residential natural gas prices increased in 2020 due to higher residential natural gas consumption caused by remote work and being at home. In 2021, the price of natural gas is forecast to rise because the industrial economy is poised to recover.

Prices (dollars per thousand cubic feet)	2019	2020	2021 (forecast)
Henry Hub Spot	2.67	2.11	3.15
Residential Sector	10.46	10.83	11.04
Commercial Sector	7.59	7.48	7.98
Industrial Sector	3.90	3.29	4.23

Table 1.

Prices (dollars per thousand cubic feet).

Supply (billion cubic feet per day)	2019	2020	2021 (forecast)
Marketed Production	100.04	98.84	98.90
Dry Gas Production	93.06	91.36	91.41
Pipeline Imports	7.37	6.84	7.08
LNG Imports	0.14	0.13	0.20

Table 2.

Supply (billion cubic feet per day).

Consumption (billion cubic feet per day)	2019	2020	2021 (forecast)
Residential Sector	13.74	12.70	13.23
Commercial Sector	9.62	8.60	9.18
Industrial Sector	23.07	22.56	23.91
Electric Power Sector	30.93	31.74	28.83
Total Consumption	85.15	83.26	82.93

Table 3.

Consumption (billion cubic feet per day).

The pandemic also reduced the supply of gaseous fuel, regardless of the type of supply chain. Coronavirus completely impacted overall natural gas consumption. The forecast for 2021 gas fuel supplies do not represent a sharp rebound. The forecast is for an increasing, fairly moderate trend.

The natural gas consumption forecast for 2021 is interesting. For the residential sector, commercial sector the trend is upward, while natural gas consumption by the electric power sector is forecast to decline, which may be due to the growth of the renewables industry and the increased interest in this energy source by this industry.

Data shows, natural gas in the residential sector, consuming natural gas for space heating, water heating, air conditioning, lighting, refrigeration, cooking and the use of many other appliances will continue to be important in the energy industry. In addition data shows that natural gas will play an important role in the industry’s recovery. It will continue to be used to heat and cool processes and power machinery (Table 4) [5].

Primary Assumptions (percent change from previous year)	2019	2020	2021 (forecast)
Heating Degree Days	0.6	−9.4	5.5
Cooling Degree Days	−5.2	1.6	−5.6
Commercial Employment	1.4	−6.6	3.2
Natural-gas-weighted Industrial Production	−0.4	−5.8	6.6

Table 4.

Primary assumptions (percent change from previous year).

Baseline assumptions (percentage change from previous year) show that Natural-gas-weighted Industrial Production will be increasing compared to 2020.

4. The impact of coronavirus on the U.S. gas industry

The emergence of the coronavirus has had a dramatic impact on natural gas intake, but also on the values of companies operating in the natural gas market area. The authors project that the net loss to U.S. GDP from COVID-19 will range from $3.2 trillion (14.8%) to $4.8 trillion (23.0%) over a 2-year period for the scenarios conducted [6].

The example of giant drilling services provider Schlumberger shows how the pandemic has affected the company’s stock value and workforce reductions [7]. The above was presented in Figure 3.

Figure 3.

Schlumberger limited (SLB). NYSE - Nasdaq real time Price. Currency in USD.

5. Coronavirus as an additional external factor

The compiled data set by U.S. for Natural Gas Consumption by End Use clearly shows the impact of the pandemic on natural gas withdrawals [8]. The Figure 4 definitively shows the growth in natural gas consumption in the U.S.

Figure 4.

U.S. natural gas consumption by end use.

Figure 5 shows the impact of coronavirus on natural gas consumption. The trend of aggregate natural gas consumption in the U.S. has been slowed by a pandemic [9].

Figure 5.

U.S. natural gas consumption.

External factors, such as weather conditions [10], fuel availability, and price [11], influence the development of a forecast of natural gas consumption by consumers. In addition, a new factor affecting gas consumption dynamics is the economy, which depends on the number of cases of COVID-19. The first cases in North America were reported in the United States in January 2020 [12]. Forecasting assumes general economic stability and no significant changes in the industry or market.

The forecast should be developed on historical data that provides a guarantee of stability [13]. However, there is no guarantee that past conditions will hold in the future. Unexpected external events, e.g., the emergence of a pandemic, undermine assumptions and render the forecast invalid. It is impossible to take into account completely the number of future illnesses and the restrictions introduced by the government. Throughout the United States, officials are enacting a number of restrictions on distancing from the public. Ordinances vary by state, county, and even city. Restrictions are escalating in many areas as cases are increasing across the country [14].

6. Forecasting natural gas consumption

This research study investigates natural gas consumption forecasting using NNAR model (neural network autoregression). Artificial Neural Networks (ANN) were hypothesized as a method to imitate the human brain and its functions while it performs cognitive tasks, or when it learns [15]. The forecasting was done using RStudio software. Two forecasts were made for the year 2021–2022. The first one was made using historical data up to January 2020 and the next one collected historical data of the year 2020 where the pandemic was ongoing. Figure 6 shows the consumption forecast with a horizon of one year. It does not take pandemics into account (Figure 7).

Figure 6.

U.S. natural gas consumption – Forecast including COVID-19.

Figure 7.

U.S. natural gas consumption (2016–2020).

Figure 8 considers the pandemic.

Figure 8.

U.S. natural gas consumption – Forecast without COVID-19.

For example, gas consumption by industry in the state of Alabama and Colorado are shown in Figures 9 and 10. The figure shows gas consumption for the years: 2018, 2019, 2020. It is clear that the first two years are essentially collinear with each other, making it possible to make a forecast of consumption for 2020. However, the onset of the pandemic introduced a structural change in the time series and resulted in lower industrial gas consumption. Such a structural change causes distortion and becomes a problem in accurate forecasting. In order to carry out a natural gas forecast for 2021, it is therefore necessary to take into account, the structural change that occurred in 2020. In addition, an analysis of the impact of COVID-19 morbidity and economic dynamics should also be carried out.

Figure 9.

Alabama natural gas industrial consumption (MMcf) in 2018–2020.

Figure 10.

Colorado natural gas industrial consumption (MMcf) in 2018–2020.

The chapter presents the use of neural networks for forecasting. The use of machine learning can perfectly be used to predict natural gas consumption [16]. They can also be used to discuss the link between the number of COVID-19 cases and natural gas consumption [17].

7. Conclusions

In conclusion, there is a definite impact of coronavirus on the dynamics of developing economies. The data presented in the article on the consumption of gaseous fuel by the industrial sector, households, natural gas transmission, shows a structural change in 2020. There is no sector that benefits from natural gas supply that has not been impacted by COVID-19. Pandemic has become a new external factor to consider when forecasting natural gas consumption.

Developed forecasts by various research centers indicated that between 2020 and 2021, natural gas consumption will be on an upward trend. Unfortunately, the emergence of a pandemic in early 2020 introduced a shock. The pandemic has become a new factor to be taken into account when making a forecast. Unfortunately, it is not easy to estimate how further the pandemic will spread, the timing of government restrictions.

Thus, it can be definitely stated that the existing forecasts must be constantly updated, supplemented with new data. Even the latest available models are not able to estimate natural gas consumption in the long term very accurately. They may also be used to discuss the four key themes that shape the politics of a sustainable energy transition.