Prepared by the Michigan Public Service Commission
Department of Labor and Economic Growth
September 2008
Michigan imports 97 percent of its petroleum needs, 80 percent of its natural gas and 100 percent of coal and nuclear fuel from other states and nations. These imports account for about 70 cents of every dollar spent for energy by Michigan's citizens and businesses. Michigan spent a total of $37 billion on all forms of energy in 2007 and of that amount $26 billion was for the energy resources imported from other states and nations.
Michigan has substantial natural gas reserves - more than any other State in the Great Lakes region. The State's Antrim natural gas fields in the northern portion of the Lower Peninsula are among the largest gas producing geological formations of this type in the United States. Michigan natural gas production peaked in 1997 at 280 billion cubic feet per year. In-state production has since declined to 161 billion cubic feet in 2007.
Michigan oil production peaked in 1979 at 35 million barrels per year and since then has declined to 5.8 million barrels in 2007.
Michigan has significant potential for energy from renewable resources, particularly from: biomass ; liquid fuels from agricultural and forestry feedstock; wind, generally near the Great Lakes shorelines and in the Thumb region; and solar. Michigan's total energy consumption is high, due in part to the State's large population, northern climate and active industrial sector. Energy-intensive activities in the State include durable goods manufacturing, such as by the automotive, glass, metal casting and chemical industries.
Michigan has limited crude oil production from small wells scattered across the Lower Peninsula. Annual oil production in Michigan was 5.8 million barrels in 2007. That year an estimated 180 million barrels of petroleum products were consumed in Michigan. Two major crude oil pipelines from western Canada cross Michigan. These are part of the Enbridge Pipeline System. One enters Michigan from the northwest; crossing the Upper Peninsula and then heading south through the Lower Peninsula before turning east into Canada. The other runs from Canada to the Chicago area and then heads northeast across the Lower Peninsula and back into Canada. This pipeline supplies both Michigan and eastern Canada. The Marathon oil refinery in Detroit2 is the State's only refinery. It has a capacity to process 102,000 barrels of crude oil per day which is equivalent to about 18 percent of the State's petroleum consumption. Most of the refined petroleum products used in Michigan are produced at refineries in Ohio, Indiana and Illinois.
Several petroleum product pipelines supply Michigan's Lower Peninsula markets. The Wolverine and BP Amoco pipelines run from Chicago area refineries to the Detroit area. The Buckeye system runs north into Michigan from refineries in Toledo and other parts of Ohio. These pipelines serve the areas of highest use in southern and southeastern Michigan where the majority of the state population resides.
Michigan, unlike many other states, does not require the use of motor gasoline blended with ethanol. In southeastern Michigan during the summer, a gasoline blend is required to reduce evaporative emissions that otherwise contribute to ozone formation. As a major corn producer, Michigan also has substantial ethanol production capacity and additional capacity is under construction.
Natural gas production in Michigan is substantial and supplies about 20 percent of the State's demand for natural gas. Natural gas wells are concentrated in the Antrim geological formations in the northern portion of the Lower Peninsula. The total consumption of natural gas in Michigan was 802 billion cubic feet in 2007.
Several major pipelines, including the Vector Pipeline from Illinois and the Great Lakes Gas Transmission line from western Canada, satisfy the remainder of the State's natural gas demand as they cross Michigan on the way to northeastern U.S. and eastern Canadian markets.
With over one-tenth of U.S. natural gas storage capacity, Michigan cycles more natural gas through underground storage than any other state in the Nation. During the summer months, when natural gas use is at its lowest, large quantities of natural gas are typically delivered into Michigan and placed into underground storage in specifically suitable geological formations. During the winter months when natural gas demand tends to be highest, gas from Michigan's 623 billion cubic feet of storage can be withdrawn to supply users both in-state and in neighboring states. Driven largely by use for space and water heating in the residential sector, Michigan's natural gas consumption is high. About 80 percent of Michigan households use natural gas as their primary energy source for home heating.
Michigan power plants can generate a total of 30,189 Megawatts (net summer capacity).3 These range from the largest, Detroit Edison's 3,129 MW coal-fired power plant in Monroe, to smaller distributed generators run by hydro and wind.
Michigan coal-burning power plants generated 60 percent of the electricity used in Michigan in 2006. The total coal use in Michigan in 2007 was 38.5 million tons of which 98 percent was used to generate electricity. The annual cost of coal used to produce electricity for Michigan is presently estimated to be $1.36 billion per year, of which 100 percent is imported. About 82 percent of the coal burned in Michigan power plants is supplied from the Powder River Basin in Wyoming and Montana. 4 A large portion of that coal is transported by rail to the western end of Lake Superior, where it is loaded onto freighter ships for delivery to power plants largely located along Great Lakes shorelines. Michigan also obtains coal by rail, from both western sources and also eastern sources, including West Virginia, Kentucky and Pennsylvania.
Michigan's three nuclear power plants, D.C. Cook Units 1 and 2, Fermi 2 and Palisades, supply 26 percent the State's electricity generation; natural gas fired generation provides about 10 percent with the remaining 4 percent provided by hydroelectric and renewable energy.
About 4 percent of the electricity production in Michigan is currently derived from renewable energy sources. Michigan is a major generator of electricity from wood and wood waste, with about 1 percent of the state's electricity produced at a half dozen wood-burning power plants. Michigan also has many small hydroelectric plants which account for approximately 1.4 percent of Michigan's electricity production. In recent years, methane recovered from landfills is being captured and converted to electricity. Electricity from landfill gas and municipal waste incinerators adds almost another 1 percent to Michigan's electric power mix. The balance of renewable energy comes from very small but fast growing contributions from solar, wind and anaerobic digesters that convert various biomass wastes into methane and use the methane to generate electricity.5 In Michigan, 32 wind turbines went into operation in 2008. This brings the State total to 35 with a combined capacity to generate 62 MW of electricity. Two more wind farms are under construction and are expected to be in operation by the end of 2008.
For transportation fuels, Michigan currently has five operating ethanol plants with a combined capacity of 256 million gallons per year and others are under construction. In 2006 Michigan used 1.3 million gallons of E-85 which is a blend containing 85 percent ethanol. In addition, much of the gasoline sold in Michigan is blended with 10 percent ethanol. Four biodiesel production plants are in operation producing between 25 and 35 million gallons per year. And, finally, for heating fuels, wood has been used for space heating and a very small percentage of energy is produced using a variety of solar thermal technologies.
The following series of graphs show for Michigan as a whole and by sector how energy is used by source, and how much was spent on energy, by fuel and by sector. The 2005 data is based on State reports from the Energy Information Administration6 and the 2007 expenditure estimates were developed by the Michigan Public Service Commission Staff. 7
The increase in crude oil and petroleum products prices in the last two years is clearly evident in the large increase in the State's total energy expenditures, despite the declining consumption of motor gasoline. Data for 2007 shows gasoline use in Michigan has continued to decline. This is in addition to the 1.9 percent drop seen in 2006 compared to 2005 and the 2.2 percent decline in 2005 from the prior year. Despite these declines in use, the expenditures for gasoline in Michigan have increased from just over $9 billion in 2004 to an estimated $12.9 billion in 2007.
Michigan has a diversified energy supply with coal, natural gas and petroleum products each contributing similar amounts to meeting the State's total energy needs with a smaller amount coming from nuclear power. See Figure 1. Biomass began making a contribution in the mid-1970's but still only represents a small share of the total supply.
Over time, one can also see the rapid growth in energy use from 1960 to 1974, when the Arab Oil Embargo resulted in a sharp jump in oil prices and triggered a recession. A second significant drop in demand is seen following the Iranian Revolution in 1979 which once again resulted in a sharp increase in the cost of crude oil, triggering another recession the following year. And while the problems with the housing mortgage industry have contributed to the current economic conditions, the rise in oil prices has also had a significant impact, particularly on Michigan's durable goods manufacturing. This sector has suffered with the loss in buying power as consumers and businesses have had to spend more to meet their energy needs. Energy use by the sectors is also distributed in similar order of magnitude as can be seen in Figure 2.
Energy use in Michigan in 2005 totaled 3.2 quadrillion BTU and cost a total of $32.4 billion. 8 See Figures 3 & 4. These energy expenditures reflect both the prices of energy and how much was used. It is the State's total energy bill. Petroleum was used to meet 32 percent of the State's energy needs at a cost that was just over 50 percent of total expenditures. This compares to the use and production of electricity which accounted for 38 percent of the total energy use, yet only accounted for 24 percent of expenditures. Natural gas was 25 percent of use and 22 percent of expenditures.
In 2007, total estimated expenditures have gone up to $37 billion due largely to increased crude oil prices. Petroleum products accounted for 55 percent of total expenditures in 2007. See Figures 17 & 18.
In each of the graphs of energy use, electricity is shown as being comprised of both "sales" and "losses." Losses reflect both energy conversion losses as primary fuels are used to generate electricity and line losses that occur as the result of electrical resistance in the transmission and distribution system before electricity is delivered for ultimate use at the State's homes and businesses.9 Also, the fuels used to generate electricity are included in the electricity usage numbers, so as a result only a small amount of coal use is seen in the Figure 4. That represents industrial uses of coal and not what is used for electricity generation.
Transportation sector use and expenditures are shown in Figures 5 & 6.10 This clearly shows the predominance of gasoline used for transportation and the nearly exclusive use of petroleum to meet the State's transportation needs. In 2005, gasoline cost Michigan motorists and businesses $10.7 billion which is estimated to have increased to nearly $13 billion in 2007 due mainly to the sharp increase in crude oil costs. In 2007, Michigan used about 4.6 billion gallons of gasoline. Gasoline for all usage is included in the transportation sector unless it is used for other industrial processes.
Residential sector use and expenditures are shown in Figures 7 & 8. Natural gas and electricity are the principal fuels used in Michigan homes. Fuel oil and kerosene has shown a steady decline because of its relatively high cost compared to other fuels. LPG/propane has seen a growth in usage in recent years in part due to homes being built in more rural areas where natural gas may not be available. Although LPG/propane is only a small share of residential use, Michigan uses more LPG/propane in the residential sector than any other state. It is also interesting that the use of wood for home heating has declined significantly since its high point in the 1980's. A total of $8 billion was spent in Michigan to meet residential energy needs in 2005, most of which went for electricity and natural gas. Due to its much higher cost per BTU compared to natural gas, Michigan's 2005 total spending for LPG/propane reached nearly a billion dollars, even though it represents a relatively small share of residential usage. In the 2007/2008 heating season, Michigan LPG/propane prices averaged $2.32 per gallon; an increase of nearly 25 percent compared to $1.88 per gallon in 2005/2006.
Commercial sector use and expenditures are shown in Figures 9 & 10. Like the residential sector, use is dominated by natural gas and electricity. In 1992, a change in how commercial use was defined in reporting by the electric industry causes a shift which reflects a re-categorization and not growth. On the expenditure side, the dominance of electricity costs can be seen. Although the usage appears proportionally smaller, the much higher cost per BTU of electricity vs. natural gas is the principal reason for this difference. Spending in the commercial sector totaled $5 billion in 2005.
Industrial sector use and expenditures are shown in Figures 11 & 12. The diversity of the energy supply used by the industrial sector is clear in these graphs. The sharp reduction in industrial coal use from the 1960's is the result of a combination of reduction in heavy energy intensive manufacturing like steel mills, coupled with environmental regulations that made alternative energy sources more attractive. The effects on the industrial sector of the economic recession that took place in the early 1980's are clearly evident in industrial energy use. The diversity of use is reflected in the expenditures. Spending in the industrial sector totaled $5.8 billion in 2005 of which petroleum accounts for nearly $2 billion, electricity $1.8 billion and natural gas $1.7 billion.
Oil and natural gas production in Michigan is shown in Figures 13 & 14. This graph shows the decline in Michigan crude oil production which currently is about 5.8 million barrels annually; down from 1979 when it peaked at 35 million barrels. Natural gas production in Michigan peaked in 1997 at 280.7 billion cubic feet and has since declined. In 2007, production was at 166.9 billion cubic feet, down 40 percent from 1997. In-state production in 2007 equaled about 20 percent of the State's annual total natural gas use.
Crude oil and natural gas prices are shown in Figures 15 & 16. Crude oil prices are a major factor in the price of all refined petroleum products such as gasoline, diesel fuel, jet fuel, etc. From the mid-1980's to the mid-1990's crude oil prices were relatively stable with the exception of the spike in prices that occurred just before the 1991 Gulf War. In December 1998, crude oil prices bottomed out at $9.81 per barrel. Following this, OPEC members asserted greater discipline over production levels. This was the beginning of the major upward price trend that led to prices above the $100 per barrel level by the end of 2007 and new record highs in 2008.11 Natural gas prices have followed a similar pattern as crude oil; stability from the mid-1980's to the mid-1990's was followed by periods of volatility. The peak price in October 2005 was a direct result of the 2005 hurricanes that shut-in a substantial share of natural gas production from the Gulf of Mexico which did not fully recover until the first part of 2006.
In conclusion, Michigan's total energy expenditures for 2007 and a comparison with prior years are shown in Figures 17 & 18. Michigan citizens and businesses spent an estimated $37 billion on energy in 2007. These expenditures reflect the level of energy used times the prices and reflect the State's energy bill. Petroleum accounts for more than half of total expenditures (56%), natural gas accounted for 18 percent, electricity 25 percent and 1 percent was spent on industrial coal, biomass and other. Most notable is the change in spending over time. A decade ago, in 1997, Michigan spent just under $20 billion compared to the $37 billion spent in 2007. While petroleum costs in this same period more than doubled, natural gas increased 71 percent and electricity 38 percent. One can see that these increases follow the increases in crude oil and natural gas prices seen in Figures 15 & 16.
About 30 cents of every dollar Michigan spends on energy is retained within the State's economy, which means about 70 cents of every dollar goes to other states and nations to pay for the petroleum, natural gas, coal and nuclear fuel the State imports. The contribution to the State's economy includes those activities that occur in Michigan. For instance it includes the value of the oil and gas produced in Michigan, and the difference between the wholesale or market prices and retail prices which supports the operation of the State's power plants and transmission and distribution systems, natural pipelines and storage infrastructures. It also includes the value added by the Marathon refinery in Detroit, and the distributors and retailers of gasoline, LPG, and other petroleum products and the many men and woman that work in Michigan in these industries who assure the reliability and availability of the State energy supply.
For additional Michigan energy statistics go to the Michigan Energy Profiles found at: http://tonto.eia.doe.gov/state/state_energy_profiles.cfm?sid=MI
1Energy consumption figures are shown in British Thermal Units (BTU). This allows the energy content of various fuels to be compared on a common basis. A BTU is about the same amount of energy as contained in a common kitchen match, and is defined as the amount of energy required to raise the temperature of 1 pound of water by 1 degree Fahrenheit. For example 1 kWh of electricity has 3,412 BTU, a cubic foot of natural gas contains 1,027 BTU, and a gallon of gasoline contains about 124,000 BTU.
2The Detroit refinery is owned by the Marathon Oil Company, with headquarters in Houston, Texas. Marathon plans almost $2 billion in capital investments in its Detroit refinery, slated for completion by 2010. See the Company's 2007 Annual Report, pp. 4, 22; http://www.marathon.com/Investor_Center/Annual_Report/.
3Michigan Electricity Profile, EIA; http://www.eia.doe.gov/cneaf/electricity/st_profiles/michigan.html.
4Domestic Distribution of U.S. Coal by Origin State, Consumer, Destination and Method of Transportation, EIA; http://www.eia.doe.gov/cneaf/coal/page/coaldistrib/2005/o_05state.pdf.
5The Michigan Renewable Energy Program, of the Michigan Public Service Commission, produces annual reports on the production and use of Michigan Renewable Energy. See http://www.michigan.gov/mrep.
6State Energy Data Reports, EIA, February 2008. http://www.eia.doe.gov/emeu/states/sep_use/total/pdf/use_mi.pdf.
7Prepared by the Energy Data & Security Section, Michigan Public Service Commission, April 2008.
8This data represents the dollar value in 2005, not adjusted for inflation.
9The category "electricity losses" is the BTU consumed to generate electricity less the BTU content of the kWh's sold to end-use customers.
10Transportation energy use is separately reported, and is not included in the residential, commercial, or industrial sector data that follows.
11For a detailed history of crude oil prices and factors that effected prices see: http://www.eia.doe.gov/emeu/cabs/AOMC/Overview.html.