Did you know that businesses across the country are paying less for natural gas now than at any time since the Ford administration? In fact, commercial utility bills are the lowest since the American Gas Association began collecting data early last decade.
Those are among the findings from a new report that AGA has produced on the U.S. commercial sector and the role of natural gas, Uncovering the U.S. Natural Gas Commercial Sector.
My team and I took a deep dive into this “forgotten” sector to uncover trends in commercial building characteristics and learn how the role of natural gas has evolved.
I call it “forgotten” because commercial end uses of natural gas tend to be considered after other high-growth markets. Many stories have been written about natural gas exports or the record volumes directed to power generation, but fewer have discussed the commercial sector.
Released in January, our report sought to unveil the diversity within the commercial segment of the natural gas market. We aspired to shed light on the range of consumers, technologies and end uses that serve as a backbone to the U.S. economy.
The Commercial Sector, Defined
Somewhat oddly, the commercial sector is typically defined by what it is not. It encapsulates all activities that aren’t related to residences, industrial manufacturing or agriculture. Instead, it represents other businesses and public services, including education, health care, public order and safety, service facilities, offices, food sales and service, lodging, retail and public assembly. Every university, hospital, police station, office building, fast food joint, hotel and VFW hall counts as a commercial space.
In other words, commercial activities encompass everything that most of us are doing when we are not at home.
All of these activities consume energy, and especially natural gas. The commercial sector uses about 20 percent of all the energy consumed in the United States, and natural gas is about one-fifth of all total commercial energy consumption (why isn’t it more? One reason is the inherent efficiency of natural gas applications.)
Whether you walk into a hospital, a police station or a pizza joint, if there’s natural gas heat or cooking, it’s almost a certainty that a natural gas utility provides it. Our report notes that there are more than 5.4 million “commercial customers” of natural gas in the United States and that 99 percent of all natural gas volumes sold to the commercial sector flow through local distribution company pipes.
The pervasive nature of local utilities in serving commercial customers led us to a revealing conclusion: that natural gas utilities are a core part of the U.S. economy and that gas is an energy engine for economic growth, job creation and new wages for the American middle class.
And this makes sense. Small businesses want to use natural gas in their workplaces just as people do in their homes.
This further suggests that if businesses are paying lower utility bills now than at any time during the last decade (when AGA records begin)—and real prices are lower than at any time since 1976—affordable natural gas is helping American businesses lower their costs, which in turn may help boost wages and add jobs.
Key Findings
Last year, we finally got a new glimpse at what’s happening within the commercial sector with the release of new data from the U.S. government. Every few years, the U.S. Energy Information Administration—the federal government’s primary office of energy statistics—conducts a survey of building owners, managers and energy providers to better understand the characteristics of the commercial sector and how it changes over time.
The last time EIA conducted its Commercial Buildings Energy Consumption Survey was 2003. (New data should have been released for year-end 2007, but a problem with the data caused EIA to scuttle the report.) Finally, in 2012, another survey was conducted, and the results were released in March 2016.
Our team at AGA did a deep dive into the survey data and also analyzed other data sets. Here are some of our findings:
The report goes into detail on all of these points and much more. We devoted an entire chapter to an analysis of the CBECS data in particular.
Our analysis was not merely a retrospective exercise. We were just as interested in what these trends suggest for the future. What will the role of natural gas be in the commercial sector during the next decade and beyond?
New projections from the EIA suggest modest but steady growth in natural gas use in the commercial sector through 2040. These estimates foresee that commercial floor space will continue to increase and that energy intensity will decline, even as purchased natural gas for commercial consumption increases. This outlook is dependent on various assumptions, such as energy prices and economic growth.
The Look Ahead
Commercial natural gas prospects are strong, but natural gas growth is not a given. Natural gas utilities will have to work with their regulators and other policymakers to continue to provide competitive service for low-cost energy. New investments into infrastructure will be needed, and new energy services must be developed. Innovative approaches, tax considerations, the removal of regulatory barriers and other mechanisms may all contribute.
To that end, many states have natural gas distribution infrastructure replacement and expansion activities underway or proposed, and some states are using natural gas infrastructure as a tool to promote economic growth. As of November 2016, 38 states have an innovative expansion program or policy to connect new customers to natural gas service.
Some states, including Mississippi, Tennessee and New York, have adopted varied approaches to address economic opportunities to extend natural gas pipeline service. These programs are designed to help customers bear the additional costs associated with new service. Including commercial customers in these types of projects can improve profitability, since the typical commercial gas customer uses almost six times as much gas as a residential customer.
Some states in the Northeast have implemented natural gas expansion programs that are used to help connect existing fuel oil customers and enable conversion to cleaner-burning natural gas. And many states have looked to leverage existing efficiency programs to comply with environmental or economic goals.
Long-term growth in the commercial sector will also require innovation and research. Natural gas utilities working with other stakeholders will have to promote new technologies to further improve the value of energy delivered to consumers. This means creating and delivering new energy services at lower costs, energy and emissions.
Advanced heating and cooling systems that utilize natural gas are among the next generation of gas technologies that, if implemented at a competitive cost, could help maintain natural gas within the commercial market. Other breakthrough technologies include natural gas heat pumps, small-scale distributed generation applications, advanced high-efficiency boilers and furnaces, and fueling facilities for natural gas vehicles.
Ultimately, we see a bright future for the commercial use of natural gas. As the economy grows, so will the commercial sector. As a low-cost, reliable fuel, natural gas will help that sector maintain its competitiveness. And it’s this competitiveness that helps drive our economy. The efficient use of commercial-scale natural gas applications lowers costs for businesses and helps increase jobs. And that means a bright future for everybody.
Richard Meyer is manager of energy analysis and standards at the American Gas Association.
