MPSC Issues Summer 2010 Energy Appraisal

Contact: Judy Palnau (517) 241-3323

The Michigan Public Service Commission (MPSC) today released the "Michigan Energy Appraisal: Summer 2010." The appraisal, published since 1978, reviews the projected prices and availability of energy in Michigan over the summer months.

The demand for energy in Michigan is expected to increase in nearly every sector for 2010, primarily due to real and expected improvements to the U.S. and Michigan economies. Due to above average reserves, no supply issues are anticipated for the summer or winter seasons. Petroleum and natural gas prices are expected to remain relatively stable, with gasoline prices projected to average under $3 during this summer's driving season. It should be noted that the economic uncertainty also translates into higher levels of uncertainty in these projections.

Electricity - Michigan's total electric sales are projected to increase by 2.1 percent in 2010, following a 6.7 percent decrease in 2009, assuming normal summer temperatures. Impacted by the recession, sales in 2009 were the lowest seen since 1997 with declines in all sectors: residential, commercial, and industrial. Part of last year's decline can be attributed to the cooler than normal summer, which saw cooling degree days 35 percent below normal, and what appears to be the bottom of the economic recession affecting the economy in Michigan and the nation. Even with the projected moderate increase in 2010, sales will only approach a return to their 1998 levels.

Natural Gas - Natural gas prices have risen slowly over the past year, influenced by the recovering state of the U.S. economy and world energy markets. Total annual natural gas sales in Michigan for 2010 are projected to be 785.7 billion cubic feet (Bcf), an increase of 8.7 percent over 2009. However, due to the large storage capacity in Michigan, there will be sufficient supplies to meet anticipated demand for the coming winter. Forecasts are based on normal weather for the remainder of the year. Natural gas usage, usually dictated in large part by winter weather conditions, may receive its biggest bump this year from an increase in industrial use and electric power generation, which are projected to experience double digit growth rates in Michigan.

Petroleum - The continued increase in surplus world oil production capacity can more than offset most anticipated supply problems which should help offset upward pressure on gasoline and other petroleum product prices from increased global economic activity for the balance of the year. However, it should be noted that substantial speculative activity in global petroleum markets is resulting in high levels of price volatility. World oil demand is expected to increase in 2010 by 1.6 million barrels per day (m/b/d) to a total of 86.1 m/b/d. This projection is from the EIA's May 2010 "Short-Term Energy Outlook." Global oil prices are currently fluctuating in the $65 to $85 per barrel range after dropping as low as $36 in December of 2008. EIA predicts an average of $84 per barrel for the remainder of 2010. However, recent declines in energy markets due to the worsening European debt crisis will likely result in a lower average oil price in 2010.

Motor Gasoline - In 2010, gasoline sales in Michigan are expected to increase 0.9 percent following a decline of 0.8 percent in 2009 and marking the first time since 2004 that gasoline sales in Michigan are projected to increase. The current uptick is due to a nascent and gradual recovery in state economic activity. Projected sales for 2010 are 4,331.9 million gallons. Gasoline prices are expected to remain relatively flat this summer, barring any unforeseen production/supply disruptions.

Distillate Fuel Oil - Distillate sales in Michigan in 2010 are projected to increase by 3.9 percent to just over one billion gallons. Diesel fuel remains the prime component of distillate demand, with the majority being used by trucks on highways. Relative improvement in the state's economic condition is the primary cause for this increase in demand as more goods are shipped by truck and rail.

###

The Michigan Energy Appraisal is prepared every six months. The Energy Appraisal is available on the Commission's website at: http://www.dleg.state.mi.us/mpsc/reports/energy