EIA raises estimate for US power demand

Natural gas is expected to temporarily lose its price advantage as a boiler fuel for the utility sector compared to residual fuel oil by the fourth quarter of this year, says the US Energy Information Agency in its June assessment of market conditions. Electricity demand for this year and next have been revised upward compared to the May outlook.


Natural gas is expected to temporarily lose its price advantage as a boiler fuel for the utility sector compared to residual fuel oil by the fourth quarter of this year, says the US Energy Information Agency in its June assessment of market conditions.

Reversing earlier predictions, the agency says oil is projected to be the cheaper of the two fuels until the second half of 2001when natural gas is expected to regain its price advantage. Spiraling natural gas prices are projected to foster fuel substitution in the electric utility and industrial sectors.

Residual fuel oil is expected to stage a price-induced recovery in early 2001 in the electric utility and industrial sectors, but the agency says it is likely to recapture only part of the market share lost during the previous 2 years. Fuel oil made a temporary comeback during 1998 and early 1999 when oil prices plummeted.

However, total residual fuel oil demand, having shrunk 6% in 1999, is projected to contract another 15% this year, the agency says, with electric power generation demand declining by 40% to less than 200,000 b/d, a record low.

The agency is projecting natural gas prices will average more than $3/Mcf for this year. Spot wellhead prices have been averaging more than $4/Mcf since late May, nearly doubling since the beginning of the year. The price of gas for the next 12 months on the futures exchange is averaging $4.20/MMbtu, reflecting market concern about the ability of producers to supply gas demand, according to the EIA's David Costello.

Electricity demand
EIA has revised its electricity demand forecasts for this year and next upward compared to the May outlook. Spurred by an early start for the cooling season, electric usage through May rose 4%, compared to the same period in 1999. The agency is dubious such strong demand will continue.

"We would be surprised, however, to see third quarter 2000 electricity demand growth exceed or even match last year's level," EIA economists said. "Thus, we expect a relatively low growth rate in midsummer to offset the apparent growth seen to date."

The summer of 1999 was 5% hotter than normal, and July was a record-shattering14.4% hotter than normal, according to EIA, a unit of the US Department of Energy. The agency is basing its forecast on a return to normal weather, implying this summer's cooling degree-days (CDD) will be 1.9% below last summer's CDD. In short, the agency is predicting summer demand will be up 1.3% compared to the summer of 1999, but electricity "shortages cannot be ruled out."

Expectations of growth in nonutility power generation for this year and next have been raised, while utility generation growth has been cut. EIA attributed the change to a different mix of generation ownership. More electric power is being generated by the nonutility sector than previously estimated.

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