Higher Forecast Energy Prices Seen Boosting Heating Bills

The Energy Information Administration (EIA) expects average household bills for most major energy sources of home heating to rise this winter because of higher forecast energy prices. Temperatures are expected to be roughly the same as last winter in much of the country. Forecast winter home heating expenditure changes vary significantly by both fuel and region. On average, EIA expects natural gas bills to rise by 5%, fueloil by 20%, and electricity by 3%.

However, expenditures for homes that use propane are expected to be about the same as last winter. Although increased expenditures for natural gas, fueloil, and electricity largely reflect higher energy prices rather than colder temperatures, a warmer-than-average winter would see smaller spending increases and a colder-than-average winter would see larger increases compared with last winter.

About 5% of all U.S. households heat primarily with propane, and many are in the Northeast and Midwest. EIA expects them to spend roughly similar amounts on average for heating this winter compared with last winter, but projected changes in expenditures vary by region. The agency expects that households in the Northeast will spend an average of $22, or 1%, more this winter than last winter, reflecting prices and expenditures that are both about 1% higher than last winter. It is expected that households in the Midwest will spend an average of $24, or 2%, less this winter, reflecting average prices that are about 1% higher and consumption that is 3% lower than last winter.

In the 10%-colder-than-forecast scenario, EIA’s expenditures forecast for propane is $266 higher than last winter in the Northeast, reflecting prices that are 14 cents/gal., or 4%, higher and consumption that is 10% higher.

Forecast expenditures are $236 higher than last winter in the Midwest, reflecting prices are that are 21 cents/gal., or 11%, higher and consumption that is 5% higher. In the 10%-warmer-than-forecast scenario, forecast expenditures are $285 lower than last winter in the Northeast, reflecting prices that are 29 cents/gal., or 9% less and consumption that is down 7%. Forecast expenditures are $246 lower than last winter in the Midwest, reflecting prices that are 15 cents/gal., or 8%, lower and consumption that is 11% lower.

EIA projects that propane production at natural gas plants and refineries will be 14% higher this winter than last winter, total consumption is expected to be the same as last winter, and net exports are forecast to be 19% above last winter. Propane inventories typically build between April and October and begin drawing down in late September or October as temperatures begin to drop. U.S. propane, including propylene, inventories at the end of September were 79.4 MMbbl, which was 8% lower than the previous five-year average for that time of year.

The low U.S. inventories were primarily the result of U.S. Gulf Coast stocks that were 19% lower than the five-year average going into the heating season. Strong global demand for propane contributed to U.S. Gulf Coast volumes remaining on the low side of the normal inventory range since early 2017.

Inventories in the Midwest, the region that relies most on propane for heating and agricultural uses, ended September 3% higher than the five-year average. Propane prices are higher at the Gulf Coast market hub at Mont Belvieu, Texas than at the Midwest hub at Conway, Kan., which may provide incentive for more propane to move to the Gulf Coast. Regional Midwest data shows stocks at or higher than the five-year averages in all of the various sub-regions.

Inventories in the Northeast ended September 33% higher than the five-year average, mainly because of high stock levels in the Mid-Atlantic region. Interruptions in service on the Mariner East 1 pipeline and delays in completing the Mariner East 2 pipeline, both of which limited propane from reaching, and being exported from, the Marcus Hook, Pa. terminal may have contributed to larger-than-normal inventory builds in the Northeast. Despite higher crude oil prices, propane prices in the region are expected to be similar to last winter, partly because of improved logistics and higher-than-normal inventories in Canada, which are expected to provide greater access to propane supplies.

Temperatures for winter 2018-2019, based on the most recent forecast of heating degree days (HDD) from the National Oceanic and Atmospheric Administration (NOAA), are expected to be roughly similar to last winter for most of the country. On a national average basis, temperatures last winter were generally close to the 10-winter average. HDD are a rough measure of how cold temperatures are compared with a base temperature—more HDD indicate colder temperatures. On average, HDD for winter 2018-2019 across the U.S. are expected to be 1% higher than last winter. However, the forecast varies among regions, with forecasts ranging from 7% more HDD than last winter in the West to 3% fewer HDD than last winter in the Midwest.

Further, although NOAA’s forecast for this winter indicates temperatures could be close to levels from both last winter and the typical winter from the past 10 years, recent winters provide a reminder that weather can be unpredictable. The winters of 2013-2014 and 2014-2015 were generally colder than normal, but the winters of 2015-2016 and 2016-2017 were much warmer than normal. Recognizing this potential variability, EIA’s Winter Fuels Outlook includes scenarios where HDD in all regions are 10% higher (colder) or 10% lower (warmer) than forecast.

(SOURCE: The Weekly Propane Newsletter, October 29, 2018)