EIA cuts 2001 electricity growth rate to 2.3%

WASHINGTON, DC, Sept. 6, 2000 — With cool summer weather prevailing throughout much of the US, annual electricity demand growth is now projected to be 1.9% in 2000, down from earlier estimates of a 2.1% increase in demand, the US Energy Information Agency said in its September short-term energy report.

Forecaster Dave Costello has also cut his 2001 growth projection to 2.3% from 2.45%.

Below-normal cooling degree-days (CDD) have kept third quarter electricity demand growth below last year's pace in the first half of 1999, according to the EIA. This summer's cooling degree-days are expected to be 4.5% below last summer's CDD, Costello says.

He says this is particularly true of July, when cooling degree-days were 22% below the national level posted in July 1999, and about 11% below normal. However, temperatures in the South and West remained high this summer, so cool weather has not been evenly distributed.

The agency is projecting total electricity demand to be up by 2.7% this winter, given normal weather patterns, driven by increases of 4.6% in the residential sector and 3% in the commercial sector.

Gas prices up 87%
EIA is presently predicting natural gas prices at the wellhead will increase about 87% between October-March compared to last winter, resulting in a 27% increase in residential natural gas prices compared to last year.

Although high oil prices have contributed to the current strength in gas prices, the predominant reason for these high gas prices has been the insecure supply situation, it contends. If the sweltering heat continues in the Southern Plains through September, Costello says the gas storage situation may be strained right up into the beginning of the heating season.

"In short, the injection rate for gas into storage still continues to be too gradual to calm the market for next winter's heating season," he says. With underground working gas storage levels about 18% below year-ago levels, the agency says, it is becoming increasingly uncertain whether or not enough gas will be available, if winter weather turns out to be very cold.

For the entire year 2000, the average wellhead price for natural gas is projected to average $3.40/mcf, the highest annual wellhead price on record in nominal terms, according to EIA. In inflation-adjusted terms, this projected price represents the highest annual average price since 1985.

Natural gas demand in 2000 is still projected to grow about 4.2% this year, compared to last, but the 2001 forecast has been revised downward to 2.5% increase, principally due to higher gas prices. The industrial sector is the leading sector for demand increases in 2000 at 9.3%, while electric utility demand is expected to decline by 4.0%.

EIA says the dichotomy is due, in part, to sales of electric generating plants by electric utilities to unregulated generating companies, fuel consumption by which is recorded by EIA in the industrial sector.

For the power generation sector as a whole, gas demand is expected to be 6.5% above its 1999 level in 2000 and 1.5% above its 2000 level in 2001, the agency says. The reduced growth rate next year is largely due to the reversal in relative prices of fuel oil and natural gas, which began in August, with fuel oil gaining the price advantage as gas prices continued to rise.

Despite the continued strength in oil prices in general, the rapid rise in gas prices this spring and summer has probably pulled delivered gas prices above heavy fuel oil prices, on a cost/btu basis, EIA says. Since this situation is likely to persist, Costello says, EIA anticipates some recovery in the amount of oil used for power generation over the very low levels seen since late 1999.

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