EIA revises gas, power demand upward

Electricity demand increased 4% over 1999 levels during the first half of 2000, higher than previously forecast, the Energy Information Agency says in its July short-term energy outlook. Given the higher growth in GDP, the agency expects demand for natural gas to be about 4.3% instead of the previously forecast 3.4%.

Jul 10th, 2000


Electricity demand increased 4% over 1999 levels during the first half of 2000, higher than previously forecast, the Energy Information Agency says in its July short-term energy outlook. The agency also noted that fears about electric reliability will continue to plague certain regions of the country especially in California and the Northeast. Reduced supplies and strong demand will keep natural gas prices at historical highs, says the EIA's Dave Costello.

Electricity demand for 2000 and 2001 was revised upward from the agency�s June report. Electricity use in the US through June of this year has increased between 2.5% and 4%, compared to the same period in 1999. Strong economic growth is driving demand, the agency says. Gross Domestic Product (GDP) increased by 5.3% for the same period.

In addition, May and June were prematurely warm sending demand for air conditioning soaring. The overall electricity growth rate for 2000 is expected to be about 2.5%.

The EIA�s forecast for electricity demand is based on normal weather this summer. Shortages cannot be ruled out however, the agency says, if there is a repeat of last year�s record heat in July and August.

The report noted that a widespread heat wave in the western US coupled with the growth in demand caused power to be cut to some commercial and industrial users in California in June. While the Southeast and Texas have considerable new capacity to relieve the increased demand, New York, New England, and the Southwest�especially California�are areas of �concern� due to low operating margins.

Gas Prices
Spot wellhead natural gas prices averaging above $4/Mmcf, almost double the price since the beginning of the year, are responding to depressed storage figures, the agency says.

Storage injection continues to be too sluggish to comfort analysts about the winter heating season. Much of the gas that would have gone into storage has just been consumed by power plants to run air conditioners in the early onset of a hot summer, it says.

The EIA is projecting natural gas prices will increase by 50% this summer, compared to last summer and by 60% this winter, compared to last winter. The price at the wellhead in real terms is projected to average over $3/Mmcf�the highest price since 1985.

The EIA revised upward its forecast for natural gas demand from its outlook last month. Given the higher growth in GDP, the agency expects demand for gas to be about 4.3% instead of the previously forecast 3.4%. GDP is now expected to grow in the 5% range for 2000 instead of 4%.

Gas injections into storage are clearly off for this time of year, compared to the same period of 1999. But the EIA differs from the American Gas Association in just how far down storage is compared to the same period a year ago. The AGA reported that working gas in storage was 1,636 bcf or 50% full. This means that stocks now stand at 480 bcf or 23% lower than at the same time last year.

But the EIA is not quite so pessimistic. It reports that the level of gas in storage at the end of June was closer to 1,760 bcf or about 18% below the year-ago level.

�The ability of the domestic industry to push gas storage to comfortable levels by the beginning of autumn remains in question at this time,� the EIA says. Even though prices are at an all-time nominal high and a 15-year high in real terms, the agency says, natural gas production from increased drilling efforts is not expected to increase appreciably until after the next heating season.

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