October 20, 2004

The Michigan Public Service Commission (MPSC) today released the "Michigan Energy Appraisal: Winter 2004 - 2005." The appraisal, published since 1978, reviews the projected prices and availability of energy in Michigan over the winter months.

The report notes that Michigan's winter energy outlook is for an increase in winter heating bills, as a result of increased heating fuel usage and price increases. This assumes a return to normal weather following last year's 7.7 percent warmer than normal weather. Supplies should be sufficient to meet projected needs, with inventories of natural gas, heating oil and propane either high or the middle of the normal range for this time of year. World oil markets remain tight causing the price of oil to reach record highs. The oil demand growth seen this year and the limited availability of spare production capacity has caused prices to move sharply upward. This has happened when events have reduced production and even when there is only a potential threat of reduced production. The situation is compounded by Hurricane Ivan, which has seriously disrupted oil and gas production in the Gulf of Mexico, and low world crude oil inventories, which leave little cushion for even temporary reduction in supply.

Natural Gas - Natural gas sales in Michigan for 2004 are projected to be 900 billion cubic feet (Bcf), an increase of 1.1 percent over 2003. Consumption last winter was down due to warmer than normal weather. Natural gas storage levels are normally built up during the summer months and are projected to be at 569 Bcf in October, sufficient to meet anticipated winter demand. Prices are expected to remain up over the course of the winter, and with the higher prices and more normal weather, heating bills are expected to increase from last year between 14 and 17 percent on average over the winter months.

Electricity - Michigan's electricity sales are expected to decline by about 0.5 percent in 2004, compared to the 1.4 percent decline seen in 2003. No supply shortages or transmission constraints are expected to affect the ability of Michigan utilities to meet winter peak electric demand.

Petroleum - U.S. oil demand is projected to be 20.42 million barrels per day (m/b/d) in 2004 increasing to 20.71 m/b/d in 2005. This demand will be supplied from domestic production plus imports of 11.62 m/b/d in 2004 and 11.77 in 2005. For 2004 and 2005, imports are projected to supply 57 percent of U.S. petroleum needs.

Motor Gasoline - Gasoline prices in Michigan have once again exceeded $2 per gallon as a result of record high crude oil prices. The Energy Information Administration projects gasoline prices will remain in the $1.90 range for all of next year. Crude oil is now selling for over a dollar per gallon. In August crude oil accounted for about 52 percent of the retail price of gasoline nationally with the balance due to refining, distribution and taxes. Despite economic growth, gasoline sales in Michigan are only expected to increase less than one percent this year over last, due in part to the high prices.

Distillate Fuel Oil - Residential heating oil prices in Michigan and the nation have increased dramatically as a result of the sharp increases in crude oil prices. The average residential prices in Michigan for home heating oil on October 18, was $1.89 per gallon excluding taxes, up 63 cents per gallon from year ago levels. Demand is expected to increase only 0.1 percent in 2004 and this, coupled with high inventories, should assure adequate supplies. A warmer than normal winter in light of the high inventories would be expected to moderate prices. Conversely, much colder than normal temperatures this winter will drive up demand and could cause some further price increase.

Heating Bills -Heating fuel expenditures per household are expected to increase this winter in Michigan due to both higher fuel prices and colder weather than last year. The price of natural gas, propane and heating oil are up by double digits. Household heating expenses over the full winter heating season (2004-2005) are expected to increase. Over the winter months, households can expect increases that range on average from $106 to $253 in household heating expenses depending on type of fuel consumed and usage patterns.

For more information on home heating prices, conservation and efficiency measures to help off set price increases and low-income energy assistance programs see: michigan.gov/bewinterwise
For more information on gasoline prices see: michigan.gov/gasprices

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The Michigan Energy Appraisal is prepared every six months. The Energy Appraisal is available on the Commission's Web site at: http://www.dleg.state.mi.us/mpsc/reports/energy/. The MPSC is an agency within the Department of Labor & Economic Growth.

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