EIA Projects Higher Household Heating Fuel Costs this Winter

Temperatures this winter, based on the most recent forecast of heating degree days from NOAA, are expected to be much colder than last winter east of the Rocky Mountains, with the Northeast and Midwest 17% colder and the South 18% colder. Despite the expectation of colder temperatures compared with last winter, temperatures in the eastern U.S. are expected to be about 3% warmer than the average of the five winters preceding last winter, as temperatures last winter were much warmer than normal. In the West, temperatures are forecast to be about 2% warmer than last winter. However, recent winters provide a reminder that weather can be unpredictable. In addition to the base case, EIA’s Winter Fuels Outlook includes forecasts for scenarios where heating degree days in all regions may be 10% colder or 10% warmer than forecast.

Nearly 5% of all U.S. households heat primarily with propane. EIA expects these households to spend less on heating this winter than in eight out of the past 10 winters, but more than last winter when both heating demand and propane prices were low. The projected increase in expenditures from last winter varies by region. The agency expects that households heating with propane in the Midwest will spend an average $290, or 30%, more this winter than last winter, reflecting prices that are about 14% higher and consumption that is 13% higher than last winter. Households in the Northeast are expected to spend an average of $346, or 21%, more this winter, with average prices that are about 7% higher and consumption that is 13% higher than last winter. However, average propane expenditures across the two regions are 18% below average expenditures from the five winters prior to last winter.

Propane inventories, which were at record-high levels throughout last winter, are going into this heating season at even higher levels. U.S. propane stocks reached 104.0 MMbbl as of Sept. 30, nearly 4 MMbbl, or 4%, higher than at the same time last year. Last winter, inventories were drawn down by 33.8 MMbbl during the heating season. An inventory draw of 40.6 MMbbl is expected this winter. The projected draw would leave stocks 32% above the previous five-year average at the end of the heating season in March. Current inventory levels should be sufficient to allow for even stronger-than-projected inventory draws given colder weather, higher crop-drying use, or stronger exports. With the addition of new export facilities over the past several years, and a new Gulf Coast terminal expected to begin operations this month, the U.S. has the capacity to support higher-than-forecast levels of propane exports when spot shipments are economically viable.

EIA notes that inventories on the Gulf Coast have been the main contributor to the record-high storage levels, with propane stocks in that region 55% above the previous five-year average for the week ending Sept. 30. Much of this storage is at facilities connected to industrial users and export terminals, and transport of the propane to the Midwest and Northeast is often costly. However, propane inventories in the Midwest were 9% above the five-year average and in the Northeast 42% were higher than the average as of Sept. 30. Higher inventory levels and improved rail delivery networks for propane should contribute to more robust propane supply chains than three years ago, when the Midwest saw prices spike during extremely cold weather. However, local markets could see tight supply conditions, particularly in cases of severely cold temperatures.