High Utility Demand Now, But Watch Out for Fall
Anyone who's been outside just about anywhere except the
Northeast knows summer came on early this year and came on strong.
Electric utilities that usually don't hit their demand peaks until
July or August hit their high marks last month. And the heat likely
won't be retreating in August. However, as the summer wears on and
fall approaches, uncharacteristically high storage levels could put
a damper on prices, traders said.
"Usually we don't see records until July or August," said
Michel' Philipp, spokeswoman for Western Resources. "The industry
right now is looking at some incredible activity because of the
temperatures and humidity that we're experiencing nationwide,
especially in the Midwest region. It's been really hot, really
early." Western's KPL peaked July 6 at 2,190 MW, but the company's
KGE hit its high mark June 29 at 1,985 MW. Similarly, Houston
Lighting & Power reached its yearly peak in June instead of
August last year and July the year before. Already, the Electric
Reliability Council of Texas (ERCOT) has set records and near
records many days this summer, pointed out one Midcontinent gas
trader. Record power demand has been accompanied by reports of
gas-fired generators burning record amounts of gas for this time of
Tucson Electric Power Co. (TEP) recently established about half
a dozen new peak demand records in about as many days in its retail
service area. A net hourly peak demand of 1,763 MW was reached
during the hour ending 5 p.m. MST Wednesday. The record not only
exceeded the previous record set Tuesday, but also exceeded the
company's 1999 projected forecast of 1,752 MW of demand. The new
record exceeded 1997's top demand of 1,659 MW by 6.3% and 1999's
projected peak demand by 0.6%. With triple-digit temperatures and
above-average humidity expected to continue, the company believes
further record peak demands could be established this month -
possibly this week. TEP said it has sufficient energy and capacity
even with continued peak demand.
Chicago's Commonwealth Edison (ComEd) last week announced
financial incentives to all customer segments to prompt energy
conservation. The new initiatives are designed to help residential,
small business, large commercial and industrial customers manage
electricity usage during peak demand days this summer.
According to the Energy Information Administration (EIA), gas
use by electric utilities is expected to rise to 3.09 Tcf next year
from a projected 3 Tcf this year. In 1997, electric utilities used
2.97 Tcf. Looking at second quarter figures for each year,
utilities used 0.72 Tcf in 1997, and gas usage is projected to jump
to 0.80 Tcf for the second quarter of this year. In 1999, second
quarter gas usage is projected to be 0.82 Tcf.
With more gas-fired generation being built to replace retired
nuclear facilities, some have voiced concern for the gas supply
picture. Not everyone, though. "I can't help but feel that we have
more deliverability out there with new gas than people are
reporting," the trader said. "There's no way we should be at the
levels we're at with storage. The producing region's fuller than
any other region on a percentage basis. I think some of that
offshore production is coming on from the deep-water, and I don't
think it's getting included [in supply totals]. I don't see how we
should be this far ahead [with storage]."
With storage as high as it is, the trader said he is skeptical
gas can remain at $2.00/Mcf or more this fall. Going into fall with
a storage overhang and no hurricanes on the horizon would mean
September and October could trade well below $2.00, he said.
Besides the weather, the high gas storage level is the strongest
fundamental affecting prices now, said another trader. "I think
we're going to continue to see [price] strength through the summer;
however, with the storage levels as high as they are, come fall,
September, October, perhaps, we're going to see - because of
storage levels being so high - we're going to see a lot of gas
needing to find a home, which I think is going to depress prices."
This trader said he and his colleagues are "fairly surprised" at
how the market is remaining fairly strong. "And I think that's in
large part due to the fundamentals. We're surprised it's as hot as
it is. Normally, in a post-El Nino summer, you see the summer
getting hotter, but not as early as it did."
Joe Fisher, Houston