Temperatures that were 15.2% and 2.1% warmer than normal in thefirst and second quarters of the year, respectively, prompted theAmerican Gas Association to significantly scale back its gas demandforecast for the year. The association is projecting a 0.3% decline(0.1 quadrillion Btus — 1 quad is roughly equivalent to 1 Tcf) ingas demand in 1998 to 22.6 quads in contrast to its Decemberforecast 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 gasdemand fell 6.8% compared to the same period last year (which wasdown 6.4% from the year prior). The 4% economic growth in theservice sector helped mitigate some of the effects of thewarmer-than-normal temperatures, but commercial gas demand stillfell 3.6% relative to the first half of 1997. AGA believesindustrial gas demand rose 1% during the quarter as a result ofstrong economic and gas intensive manufacturing growth. Thatoutlook contrasts sharply with a report from the Energy InformationAdministration that industrial demand was down 4.5% during thatperiod.

In the electric utility sector, low fossil fuel prices led to5.1% gas demand growth in the first quarter, the only period forwhich data is available, AGA said. But the association is expectinga 1.4% increase (to 3.1 Quads) in gas use for generation byelectric utilities for the year because of an expectedwarmer-than-normal cooling season and a 7% drop in hydroelectricpower production compared to last year.

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

Other observers, however, are not as certain temperatures duringthe second half will benefit gas demand. For example, WEFA Inc.’senergy analysis group said only 12 of the last 27 La Nina yearswere warmer than normal and 15 were colder than normal. “Thisevidence is not so compelling that we would bet on an extremelycold winter.” In fact, because last fall was colder than normal,Wefa is expecting weaker gas demand this fall compared to lastfall.

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

As a result, AGA projects residential demand to increase 3.1%during the second half but be down 3.2% for the year. Commercialgas demand, however, is forecast to drop 1.3% in the second half ofthe year and end the year down 2.6% to 3.2 quads because ofmoderate 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, economicgrowth and the impact of a hot summer on demand for nonutilitygeneration, which predominately is gas-fired.

Rocco Canonica

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