World Energy Outlook 2006

capability in power generation and heavy industry. In addition, some
productive activities have stopped or been shifted overseas, where gas prices
and overall production costs are lower. The US chemicals industry, which
relies heavily on natural gas feedstock, has contracted sharply in recent years. 10
For example, more than a fifth of ammonia capacity has been shut and
production has fallen by more than a third since 2000. North American gas
demand rebounded in 2002 as prices fell back from the highs reached in 2001
and then slumped again over 2003-2005 as prices rose strongly. US gas
demand dropped by 2.3% in 2005, partly because of the damage to industry
and households caused by hurricanes. European gas demand rose moderately
in 2004 and 2005, even though some industrial consumers and power
generators have been able to switch to cheaper coal or heavy fuel oil. Demand
in non-OECD regions, including developing Asia, was particularly strong,
reflecting rapid economic growth. Final prices in many non-OECD
countries have increased much less than in the OECD, because of price
controls or because their gas markets are physically unconnected to
international markets.
The surge in coal demand in 2002-2004 was at least partly driven by higher oil
and gas prices, as coal became more competitive in power generation. The price
of coal delivered to power generators – the main market for coal – has risen
sharply in most major coal-consuming countries, but generally less in
percentage terms than heavy fuel oil, distillate and natural gas. The use of coal
in power generation is set to remain strong in the coming years as a growing
share of new power plants ordered in the last few years has been coal-fired,
partly because of relatively higher gas prices. Gas-fired plants had been the
favoured option at the beginning of the decade in many parts of the world,
though coal continued to account for the bulk of new capacity in China and
India.
Taking in aggregate natural gas, coal and oil demand used in stationary final
uses, there is little evidence of price having any significant impact on percapita
demand since the 1980s. In fact, the reverse appears to be the case,
with shifts in per-capita demand altering prices. The impact of the first two
oil-price shocks on demand in per-capita terms is clearly apparent, but the
drop in prices in 1986 and 1998 did not induce a rise in demand (Figure
11.15). In contrast, a slump in per-capita demand in 1997-1998, in the wake
of the Asian financial crisis, certainly contributed to the fall in oil prices at
that time. Similarly, a recovery in demand in 2000 and again in 2003 helped
10. Testimony of the American Chemistry Council on the Impact of High Energy Costs on
Consumers and Public, presented to the US Congressional Energy and Mineral Resources
Subcommittee, 19 May 2005.
Chapter 11 - The Impact of Higher Energy Prices 293
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© OECD/IEA, 2007