MPSC’s Summer Energy Appraisal: Pandemic’s impact on energy demand and prices continues to drive uncertainty
FOR IMMEDIATE RELEASE May 26, 2021
As restrictions related to the COVID-19 pandemic are eased and economic activity rebounds, Michiganders can expect higher gas prices in summer 2021 than they were a year ago, but overall projections on energy supply and demand remain uncertain as the state continues to adjust to the impacts of the pandemic.
Higher expected gasoline prices are one of the key findings of the Michigan Public Service Commission’s Michigan Energy Appraisal Summer Outlook 2021, an annual report that in more normal times provides a short-term view of the MPSC Energy Security Section’s expectations for energy supply and demand. COVID-19 and its deep impact on lives and the economy has upended such projections, owing to lagging data and uncertainties about COVID’s future impacts on energy use and consumption patterns.
Here’s a look at the report’s main conclusions across energy sectors for summer 2021.
- COVID-19 led to a 5% reduction in electricity sales in 2020 compared to 2019, led by the industrial sector’s 16% decline, while residential electricity use increased 6.6% to 35.7 billion kilowatt hours, owing to Michigan residents working from home. Current weather projections call for a summer 2021 that’s 8% warmer than average, which could increase electricity use.
- The summer 2021 projected peak electrical demand plus planning reserve margin requirements are expected to be 21,459 megawatts (MW) - down slightly from 21,945 in 2020. Electric demand for Consumers Energy peaked at 7,675 MW and for DTE Energy at 10,337 on July 9.
- Generation capacity required to serve Michigan’s Lower Peninsula decreased by 178.1 MW in 2021-2022, while generation capacity requirements for the Upper Peninsula and eastern Wisconsin rose by 358.1 MW.
- Residential natural gas demand declined in 2020 by 6% because of COVID-19’s impact, and when annual consumption data for the industrial and commercial sectors are released by the U.S. Energy Information Agency (EIA), significant declines in industrial sector natural gas use are also expected owing to the pandemic’s slowing of economic activity.
- The average monthly residential summer bill for Michigan’s four largest gas utilities – DTE Gas, SEMCO Energy, Consumers Energy, and Michigan Gas Utilities – is projected to be about $36.79 for the April-October 2021 period.
- A residential customer’s annual gas bill from April 2021 to March 2022 is forecasted to be $824, about $63 higher than the previous year.
- U.S. crude oil production averaged 11.3 million barrels per day in 2020 and is expected to decrease to 11.04 million for 2021 and rise to 11.86 million barrels per day in 2022.
- Based on EIA protections, Michigan crude oil producers might expect to receive $50 a barrel for sweet blends and $45 a barrel for sour blends in 2021, which could encourage exploration and development of additional wells after a year of depressed prices in 2020.
- Demand for gasoline in 2020 was 3.9 billion gallons, a decline of 15.2% from 2019, and the second consecutive annual decline, largely attributed to COVID’s impact on state economic activity. With pandemic restrictions easing, demand is expected to rebound in 2021, although the extent of the rebound will depend on factors including future infection rates and consumer comfort with travel.
- Owing to both the glut of motor gasoline in the early days of the pandemic and the impact of February 2021’s extreme cold weather on refinery output, national gasoline inventories were near the bottom of the five-year range for this time of year, at 234 million barrels as of May 14, 2021, about 21.5 million barrels lower than the previous year. Midwest inventories were at 45.6 million barrels, 9.2 million barrels fewer than in 2020.
- As of May 19, a gallon of regular gas was $2.94, up from $1.85 a year ago, according to AAA Michigan. The EIA projects Midwest regular-grade gasoline prices will average $2.71 per gallon during this year’s April-September driving season, up from $1.92 per gallon in 2020.
- Total distillate demand, primarily diesel fuel, declined only slightly, to 1.17 billion gallons in 2020 from 1.19 billion in 2019.
- Midwest distillate stocks were at 26.7 million barrels as of May 14, 2021, lower than in 2020. U.S. distillate inventories were near the middle of the five-year range at 132 million barrels, down from 159 million barrels a year ago.
- On-highway diesel prices as of mid-May 2021 were at $3.15 per gallon, up 70 cents per gallon from a year ago.
This year’s report also highlights two key issues that will continue to receive attention from the MPSC:
- Enbridge Energy’s application for authority to replace and relocate the segment of the Line 5 pipeline in the Straits of Mackinac into a tunnel beneath the lakebed remains an active case before the Commission (Case No. U-20763). Significant developments in the case include the Department of Environment, Great Lakes, and Energy’s Jan. 29, 2021, approval of Enbridge’s application for certain permits required to build the utility tunnel under the Straits. On April 21, 2021, the MPSC rejected intervenors’ arguments that the Commission must examine whether there is a public need for the 641 miles of Line 5 not at issue in Enbridge’s application, while also agreeing that the replacement pipe segment review must include an examination of the allegations of greenhouse gas pollution under the Michigan Environmental Protection Act.
- While Michigan’s gasoline supplies were not interrupted, a ransomware cyberattack in early May 2021 on the Colonial Pipeline, which delivers gasoline, diesel, jet fuel and heating oil, impacted supplies along the Gulf Coast through the East Coast. Michigan primarily relies on refined petroleum products from Marathon’s Detroit Refinery and refineries in the Chicago and Toledo. MPSC Staff closely monitored the situation and included in the report highlights of the MPSC’s work to ensure the safe and reliable delivery of energy products to consumers.