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 the warmerthan normal temperatures but commercial gas demand still fell 3.6%relative to the first half of 1997. AGA believes industrial gasdemand rose 1% during the quarter because of strong economic andgas intensive manufacturing growth in contrast to a report from theEnergy Information Administration that industrial demand was down4.5%. 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. But AGA is expecting a 1.4% increase (to3.1 Quads) in gas use for generation by electric utilities for theyear because of a warmer than normal cooling season and a 7% dropin hydro electric power production from 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 expects weather patterns during the latterhalf of the year to be similar to those experienced following the1982-83 El Nino winter, the strongest El Nino event of the century.During the third quarter of 1983, there were 15.9% more coolingdegree days (CDDs) than normal and during the fourth quarter ofthat year there were 10.3% more heating degree days (HDDs) thannormal. AGA expects the third quarter of this year to include 15.5%more cooling degree days than normal and the second half of theyear as a whole to 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, residential demand is projected to increase 3.1%during the second half of the year, but be down 3.2% for the year.Commercial gas demand, however, is forecast to drop 1.3% in thesecond half of the year and end the year down 2.6% to 3.2 quadsbecause of moderate economic growth and low prices for competingfuels. AGA’s base case 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.

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