MPSC Issues Summer Energy Appraisal

Contact: Judy Palnau (517) 241-3323

The Michigan Public Service Commission (MPSC) today released the "Michigan Energy Appraisal: Summer 2011."  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 be relatively stable for 2011 with modest upticks for electricity and natural gas usage.  These sectors are primarily influenced by deviations in normal weather patterns.  Projected growth in the U.S. and Michigan economies will place upward pressure on energy consumption in motor gasoline and distillate fuels; however, recent volatility in crude oil and transportation fuels prices will likely exert downward pressure on both the economy and consumption of these fuels counterbalancing any likely increases.   Due to above average reserves, no supply issues are anticipated for the summer or winter seasons.  Gasoline prices are expected to remain higher throughout the summer, averaging around $4 per gallon.

Petroleum - Increased demand in developing economies, reduced output from non-OPEC nations, disruptions to Libyan supply, and overall uneasiness about future regional stability in the Middle East and North Africa have led to a sharp increase in crude oil prices and placed considerable strain on surplus world oil production capacity.  According to the EIA's April 2011 "Short-Term Outlook," world oil demand for crude oil and liquid fuels in 2011 is expected to increase to 88.2 million barrels per day (m/b/d), which is an increase of 1.5 m/b/d from 2010.  EIA predicts prices to average around $106 per barrel for 2011 and $114 per barrel in 2012.  However, it should be noted that political and social unrest in producing nations and substantial speculative activity in global petroleum markets is resulting in high levels of price volatility and could affect demand dramatically.

Motor Gasoline - Prices are expected to remain higher heading into the summer driving season due to the rise in world crude oil prices and building fears of supply disruptions stemming from floods in the U.S. refining sector. According to the EIA's "Short Term Energy Outlook," national gasoline prices for the summer driving season will average about $3.89 per gallon for 2011, up $0.90 from last summer.  As a result, the average U.S. household is expected to pay about $675 more for vehicle fueling costs than in 2010.  While the continuing economic recovery will place upward pressure on gasoline consumption, higher retail prices will have a dampening effect.  In 2011, gasoline sales are expected to increase by 0.1 percent in Michigan following an increase of 1.2 percent in 2010.

Electricity - Assuming normal summer temperatures, Michigan's total electric sales are projected to increase by 2.3 percent in 2011, following a 6.1 percent increase in 2010.  Contributing to this increase is a projected 4.3 percent growth in the industrial production index for the state.  Despite these increases, electricity usage will likely remain below 2007 levels.  Given the anticipated demand and reinforced by the availability of estimated reserve margins within the MISO and PJM footprints, there should be an adequate supply of electricity over the summer.

Natural Gas - Natural gas prices continue to remain stable in the face of an increasingly volatile crude oil and petroleum market. Total annual natural gas sales in Michigan for 2011 are projected to be 780.7 billion cubic feet (Bcf), an increase of 2.4 percent over 2010.  Natural gas usage is predominately dictated by winter weather conditions.  Predictions for 2011 include the 2010/11 winter season that was 3 percent colder than normal and an expectation of normal winter weather for the beginning of the 2011/12 season.

Distillate Fuel Oil - Distillate sales in Michigan for 2011 are projected to decrease by 0.1 percent to just over 1 billion gallons. Diesel fuel remains the prime component of distillate demand, just under 95 percent, with the majority being used for transportation.  While the state's economy is expected to grow an average of 4.3 percent in 2011, the effect of higher diesel prices is expected to suppress demand.

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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 .  The MPSC is an agency within the Department of Licensing and Regulatory Affairs, State of Michigan.

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