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Warm First Half Prompts AGA To Lower Gas Demand Forecast

Warm First Half Prompts AGA To Lower Gas Demand Forecast

Temperatures that were 15.2% and 2.1% warmer than normal in the first and second quarters of the year, respectively, prompted the American Gas Association to significantly scale back its gas demand forecast for the year. The association is projecting a 0.3% decline (0.1 quadrillion Btus -- 1 quad is roughly equivalent to 1 Tcf) in gas demand in 1998 to 22.6 quads in contrast to its December forecast of 3.1% gas demand growth this year.

Gas demand during the first half of the year was down 1.5% compared to the first half of 1997, AGA said. Residential gas demand fell 6.8% compared to the same period last year (which was down 6.4% from the year prior). The 4% economic growth in the service sector helped mitigate some of the effects of the warmer-than-normal temperatures, but commercial gas demand still fell 3.6% relative to the first half of 1997. AGA believes industrial gas demand rose 1% during the quarter as a result of strong economic and gas intensive manufacturing growth. That outlook contrasts sharply with a report from the Energy Information Administration that industrial demand was down 4.5% during that period.

In the electric utility sector, low fossil fuel prices led to 5.1% gas demand growth in the first quarter, the only period for which data is available, AGA said. But the association is expecting a 1.4% increase (to 3.1 Quads) in gas use for generation by electric utilities for the year because of an expected warmer-than-normal cooling season and a 7% drop in hydroelectric power production compared to last year.

AGA expects gas demand during the second half of the year to get a boost from the La Nina weather event, which is colder-than-normal equatorial Pacific waters that typically produce colder-than-normal winters in the U.S. AGA also noted nine of the past 11 summers following an El Nino winter have been warmer than normal.

Other observers, however, are not as certain temperatures during the second half will benefit gas demand. For example, WEFA Inc.'s energy analysis group said only 12 of the last 27 La Nina years were warmer than normal and 15 were colder than normal. "This evidence is not so compelling that we would bet on an extremely cold winter." In fact, because last fall was colder than normal, Wefa is expecting weaker gas demand this fall compared to last fall.

AGA said it expects weather patterns during the latter half of the year to be similar to those experienced following the 1982-83 El Nino winter, the strongest El Nino event of the century. During the third quarter of 1983, there were 15.9% more cooling degree days (CDDs) than normal and during the fourth quarter of that year there were 10.3% more heating degree days (HDDs) than normal. AGA expects the third quarter of this year to include 15.5% more cooling degree days than normal and believes the second half of the year as a whole will include 5% more HDDs than normal. The year is expected to include 11.9% more CDDs than normal and 6% more HDDs than normal.

As a result, AGA projects residential demand to increase 3.1% during the second half but be down 3.2% for the year. Commercial gas demand, however, is forecast to drop 1.3% in the second half of the year and end the year down 2.6% to 3.2 quads because of moderate economic growth and low prices for competing fuels.

AGA's base forecast projects industrial demand will grow 1.7% this year because of lower gas prices compared to 1997, economic growth and the impact of a hot summer on demand for nonutility generation, which predominately is gas-fired.

Rocco Canonica

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