Gas Bulls Can't Bank on Electric Cars for Big U.S. Demand Boost

(Bloomberg) -- The era of electric vehicles could be a boon for U.S. natural gas bulls-- but not a windfall.

New demand for gas, even in a bullish case, “is actually quite small,” Sanford C. Bernstein & Co. LLC analysts led by Jean Ann Salisbury said in a research note Friday. The larger impact would come from the resulting decline in oil consumption, which would boost gas prices as production of the power-plant fuel from crude-rich shale basins drops, the report said.

Even with a high penetration of electric vehicles, gas demand would be up 4 billion cubic feet a day by 2040, according to Bernstein. That’s 5 percent of today’s demand. The estimate is based on a projection that electric vehicles sales will reach 20 percent of all auto sales by 2030 and 50 percent by 2040.

Gas prices are heading for the worst annual decline since 2014 as output from shale basins surges to a record. Though demand for the fuel has climbed as exports rise and power plants switch to cleaner-burning gas from coal, bulls need a frigid winter to siphon off the deluge of supply -- and so far, the forecasts have failed to deliver.

Most of the gas output growth in the next decade is expected to come from so-called associated gas from oil production, Salisbury said in the note. 

“If that goes away, meeting gas demand would require bringing the higher-cost, dry gas basins back into the equation faster,” she said. So a big boost in electric vehicles would likely be most beneficial to producers in the Haynesville, Fayetteville and Barnett shale plays in the southern U.S., she said.

To contact the reporter on this story: Meenal Vamburkar in New York at mvamburkar@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Christine Buurma, Carlos Caminada

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