Cooler summer temperatures for most of the US have minimized system-straining peak electric demand and possibly helped mask the need the expand the US electricity system, the US Energy Information Agency says in its August short-term energy report.
Forecaster Dave Costello says projections of growth in demand for electricity have been revised slightly downward to 2.1% in 2000 and 2.45% in 2001.
Cooling degree-days (nationally) for July were 22% below 1999 levels throughout much of the nation and about 10% below normal. As a result, third quarter electricity demand is projected to be down slightly from 1999 levels.
However, very hot conditions in California have placed the statewide supply system at critically low levels of reserves this summer. High temperatures in the Rocky Mountains and Pacific Southwest during the week ended July 29 contributed to a 16.6% and 26.6% increase, respectively, in electricity output, compared to a year ago, the agency reported.
The EIA says this experience and a broader set of problems that materialized in July 1999 may be warning shots over the bows of electric systems as they restructure, and could be signals for needed infrastructure improvements and expansions to avoid reliability problems.
In any case, says the EIA, abnormally cool conditions, such as the country experience this July, should offer little solace to key regions with tight reserves. August could still prove to be a hot month and cause demand to spike. Major concerns for utilities are the possibility for transmission equipment and other equipment failure during hot spells.
Gas price increase
Natural gas market activity continues to expose US vulnerability to potential supply shortfalls, particularly in view of burgeoning power sector demands and large potential increases in heating demand just a few months down the road, according to the EIA.
"We are projecting natural gas prices at the wellhead will increase by about 55% this winter, compared to last winter," Costello says. High prices have discouraged storage injections, the EIA says. Given the combination of high electricity demand and the potential for a cold winter, the expected demand relative to storage levels "may be the highest it has been in many years," it says.
While forward wellhead gas prices have retreated from the highs set in June, a resurgence in early August in spot and futures prices illustrates continued volatility amidst uncertainty regarding North American supply adequacy, demand potential, and even potential hurricane damage.
While weather reigns supreme in the hierarchy of short-run factors affecting the natural gas demand and supply balance, the EIA says the other important factor that bears watching is the anticipated turnaround in North American gas production performance.
High�and growing�rates of gas drilling activity promise solid improvement, but the apparent performance so far in 2000 suggests significant new production will not come on line before the onset of the heating season, the agency says.
But there is a caveat. Commodities tend to respond quickly to changes in supply and demand, the EIA warns. If mild winter weather occurs for a prolonged period in the gas consuming regions of the US, projected natural price increases could vanish, it says.
