Electricity a bright spot for winter gas use, EIA says

By the OGJ Online Staff

HOUSTON, Oct. 4, 2001 – Electricity is the bright spot in an otherwise bleak outlook for natural gas use this winter, the US Energy Information Administration said Thursday.

The EIA expects total electricity consumption to fall about 1% this winter, compared to last year. But with industrial consumption contracting, EIA said the principal sector keeping gas demand from falling even more sharply is the power generating sector. While some weather forecasters expect the winter to be somewhat colder than average boosting gas consumption, the EIA threw cold water on the idea.

It forecast an average winter, cutting heating demand by 7.2%, compared to last winter. The agency attributed a prospective increase in gas use to a reversal of significant fuel substitution away from gas that occurred during the gas market squeeze that developed last winter.

Spot wellhead prices, which averaged $6.30/Mcf last winter, are expected to be almost two-thirds lower this winter at about $2.10/Mcf. The price of delivered gas to electric utilities dropped to about 11% below the heavy fuel oil price in September, the agency said.

Over the whole year of 2001, electricity demand is expected to grow less than 0.5%, mainly because of the weak economy. That’s compared to estimated growth of 2.8% in 2000. Industrial demand for electricity is expected to be down 48 billion kw-hr or 4.4% this year.

EIA said this year’s weak economic performance contributes to what most likely will be the first absolute decline in overall energy demand of 0.5% since at least the early 1990’s. The agency expects industrial demand to revive somewhat in 2002 along with the economy.

In 2001, growth in residential and commercial demand for electricity is expected to be 3.2% and 2.7%, respectively, due mainly to continued expansion of the customer base and weather effects. But the EIA said these two sectors, particularly the commercial sector, are expected to be weaker next year because of the lack of weather effects and very slow growth in commercial employment.

The EIA projected natural gas demand in 2002 will rise 3.9% as the economy picks up somewhat from its virtual stall in 2001 and as much lower gas prices encourage displacement of oil and other fuels in favor of natural gas.

Gas inventories are expected to stay high next year, and “therefore, we expect further diminishing in the average annual wellhead price to about $2.10/Mcf,” EIA forecasters said. “Prices could disintegrate even more if we experience mild weather this fall and winter.”

Based on 5 month’s worth of monthly survey data on gas consumption and the downward revision of estimates of economic growth as a result of the September 11 attack, EIA said it expects gas demand to decline 2% in 2001, compared to 2000.

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