Home heating costs expected to fall in milder winter

U.S. households will see heating costs drop this winter as milder weather reduces demand, the Energy Information Administration said.

The EIA said expenditures will fall by 15 percent on average for homes that rely on heating oil from October through March versus about 5 percent for natural gas consumers. Electricity costs will drop by 2 percent. The projections are based on a record rebound in gas stockpiles, a drop in crude oil prices and the National Oceanic and Atmospheric Administration’s forecast that the region east of the Rocky Mountains will be much warmer than last winter.

Heating costs surged early this year when waves of polar air spurred record demand for natural gas while depleting stockpiles of heating oil and propane. While the outlook for less intense cold will reduce household consumption, prices in the Northeast may climb at times because of limited gas pipeline capacity, the shutdown of a Vermont nuclear reactor in and heating oil stockpiles at an 11-year low, the report showed.

“U.S. households in all regions of the country can expect to pay lower heating bills this winter because temperatures are forecast to be warmer than last winter and that means less demand for heat,” EIA Administrator Adam Sieminski said in an e-mailed statement.

About half of U.S. households rely on natural gas for heating and 39 percent for electricity, EIA data show. Heating oil and propane each have a five percent share nationwide.

The threat of bottlenecks on pipelines going into the Northeast “is something that we are watching pretty closely” because they have been operating close to capacity and could lead to higher electricity prices, Sieminski said at a conference in Washington today. “It could take a couple years to get pipelines built.”

Households relying on natural gas will see heating costs drop 4.6 percent to $649 after rising the previous winter to three-year high of $680, the EIA said. The decline will be driven by a 9.8 percent drop in fuel consumption even as the price of gas increases by almost 5.8 percent in the period.

Utilities started stocking up for next winter in April and prices this year are on average higher than they were a year earlier, the EIA said.

Gas stockpiles rebounded at a record pace after dropping to an 11-year low of 822 billion cubic feet in March. The EIA expects stockpiles to jump to 3.532 trillion cubic feet by the end of this month, which would be the lowest for the time of year since 2008.

“Even if this winter is as cold as last year’s, the net withdrawal from natural gas inventories over the heating season would not be as large as last winter’s drawdown because domestic gas production this winter is expected to be significantly higher than it was last winter,” Sieminski said.

Natural gas futures for November delivery rose 6.1 cents, or 1.6 percent, to $3.959 per million British thermal units at 1:43 p.m. on the New York Mercantile Exchange. Prices are down 6.4 percent this year.

New England gas prices are trading significantly higher than they were a year ago, which are boosting on-peak power prices for January to $180 a megawatt-hour, EIA data show. These higher costs reflect possible constraints on gas pipelines feeding households and electricity producers and the shutdown of Entergy Corp.’s 604-megawatt Vermont Yankee plant, according to the winter fuels outlook.

“To say it’s not going to be that cold as last winter, that might be from a probability perspective accurate but we simply don’t know what it will be till the end of winter,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “In constrained locations a few days of really cold weather can result in significant price spikes on the daily market because you have a lot of demand.”

Households using heating oil will pay $1,992 this winter, 15 percent less than a year earlier, as prices and demand are projected to decline, the statistical arm of the Energy Department said.

“Heating oil prices are expected to be lower this winter because crude oil prices are lower,” said Sieminski.

Propane consumers in the Midwest will see costs drop by 34 percent on average to $1,500 amid higher stockpiles, while in the northeast costs will be down 13 percent. Homes that rely on electricity will see drop of 1.8 percent to $938, according to the EIA’s winter fuels outlook.

This story was originally published October 7, 2014 at 2:12 PM with the headline "Home heating costs expected to fall in milder winter."