Washington (Platts)--4Feb2009

Already-severe losses in US industrial demand for natural gas are likely
to get worse before they get better, Barclays Capital said in a new report.

"Anecdotal evidence suggests that the most natural gas-intensive
industries have scaled down operations, in some cases nearly in half,"
Barclays said Tuesday in its weekly gas update. Industrial consumption
accounts for about 25% of average US daily gas demand.

The report added that although recently released data from the US Energy
Information Administration does not support the market's fear of accelerating
deterioration in industrial demand, more timely Industrial Production indexes
issued by the Federal Reserve show the contraction in industrial activity
accelerated in the latter part of 2008 and is expected to deteriorate sharply
in the current quarter, followed by a slower decline in the second quarter.

Barclays predicted that industrial output should rebound in the third and
fourth quarters and with it, the demand for gas. "This outlook would imply
that the natural gas market is currently experiencing the worst deterioration
of demand in this cycle," the report said.

According to the IP indexes the industrial sector began contracting in
June, when output fell 0.1% year-on-year.

"But the pace of weakening picked up in the last six months of 2008, with
November activity down 5.9% year-on-year and December down 7.8%," the report
said.

In addition, the report said the index of gas-intensive industries also
has contracted since July, and like the overall IP index for the US, the
declines were steeper in the latter part of the year. October fell by 4.4%,
November was down 8.1% and December was down a "staggering" 10.4%, according
to the report.

Among the worst performers, the Primary Metals category stands out," the
report said. "Comprised predominantly of the aluminum and steel industries,
its industrial production index fell 30.5% year-on-year in December."

Barclays said the chemicals sector, which is the single largest
industrial consumer of gas with about 6.3 Bcf/d of demand, was down 11.3% year
on-year in December.

--Cheryl Buchta, cheryl_buchta@platts.com