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Michigan Production Down, Demand Up; Supply 'Adequate'

October 13, 2008
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Energy supplies in Michigan will be adequate to meet anticipated demand this winter, but prices will be much higher than last year, according to a winter outlook released by the Michigan Public Service Commission (PSC) and the state's Department of Labor and Economic Growth.

The semiannual Michigan Energy Appraisal projected natural gas prices to be 21% higher this year. The average weighted price for residential customers for all regulated gas utilities in Michigan is currently $12.63/Mcf, compared to last year's average of $10.48/Mcf. Total sales in the state are projected to be 822.7 Bcf this year, about 2.6% more than in 2007.

Natural gas production in Michigan is projected to decline by 4% to 157 Bcf in 2007 from 163.7 Bcf in 2007, the eleventh consecutive year of decline, the PSC said.

"This downward production trend is expected to continue into the foreseeable future, as the existing natural gas wells have reached maturity and the production from new wells is not sufficient to offset this decline," according to the report.

Faced with declining in-state production and increasing demand, the PSC projected net interstate deliveries to be 640.9 Bcf this year. Storage levels are projected to be at 634.2 Bcf (98%) this month and should be sufficient to meet anticipated demand for the coming winter, according to the PSC. Natural gas consumption for the average household in the state is expected to be 73 Mcf between November and March, about the same as in the winter of 2007-2008, but the 21% price increase means that gas will cost $922, up from $766 last year.

Approximately 79% of Michigan homes are heated with natural gas, 10% with propane, 7% with electricity, 3% with heating oil and 1% use wood, solar and other fuels.

Michigan's electricity sales are expected to decrease by 1.4% in 2008 due to a reduction in electricity demand in all sectors. According to the PSC outlook, no supply shortages or transmission constraints are expected to affect the ability of the state's utilities to meet winter peak electric demand, which is normally at least 25% lower than summer peak demand.

All of the projections were made under the assumption that weather in the state this winter will be similar to the winter of 2007-2008. Over the past five years heating degree days have averaged 5% warmer than normal and the National Weather Service has forecast warmer-than-normal temperatures for the Great Lakes region again this year, the PSC said. WSI Corp. recently forecast warmer-than-normal temperatures to dominate the North Central United States in October and November, with colder-than-normal air moving into the region in December (see related story).

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