Friday, October 18, 2019
(October 18, 2019) — The Energy Information Administration (EIA) expects that average expenditures for the major home heating fuels will decline for most households this winter compared to last year, owing to warmer forecast temperatures across much of the country. The agency’s Winter Fuels Outlook notes, however, that changes in household heating expenditures vary significantly by both fuel choice and region. For the average household, EIA expects that both natural gas and electricity bills will decline by 1%, fueloil by 4%, and propane by a marked 15%.
But in contrast to the national average, EIA forecasts that expenditures will increase for homes that heat with natural gas in the Midwest and South as a result of higher retail natural gas prices. And although the lower average expenditures forecast largely reflect warmer temperatures this winter compared with the winter of 2018-2019, a colder-than-average winter could result, leading to increases in expenditures.In addition, retail fueloil prices could rise above those forecast because of ongoing uncertainties. For example, there is unpredictability regarding the effect global sulfur restrictions on marine fuels that go into effect in January will have on world distillate fuel markets. In addition, distillate fuel inventories in the Northeast, the main residential fueloil market, are low heading into winter.
Based on the most recent forecast of heating degree days (HDD) from the National Oceanic and Atmospheric Administration (NOAA), EIA expects temperatures for winter 2019-2020 to be warmer than last winter for most of the U.S. On a national-average basis, temperatures last winter were slightly colder than the most recent 10-winter average. HDD are an approximate measure of how cold temperatures are compared with a base temperature—more HDD indicate colder temperatures. On average, EIA expects total HDD for this winter across the nation to be 4% less than last winter. However, the forecast varies among U.S. regions and forecasts range from 7% fewer HDD than last winter in the Midwest to no change in HDD from last winter in the South.
EIA adds that although NOAA forecasts temperatures this winter to be warmer than last year, 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, the Winter Fuels Outlook includes scenarios where HDD in all regions are 10% colder or 10% warmer than forecast.
About 5% of all U.S. households use propane as their primary space-heating fuel and many of these are in the Midwest and Northeast. EIA expects these households to spend 15% less on average for heating this winter compared with last winter, but forecast changes in expenditures vary by region. The agency expects that households heating with propane in the Northeast will spend an average of $228, or 12%, less this winter than last winter, a result of prices that are 10% lower and average household consumption that is forecast to be 3% less than last winter. EIA expects households in the Midwest to spend an average of $236, or 17%, less this winter, reflecting average prices that are about 12% lower than last winter and consumption that is down 6%.
Similar to fueloil, changes in wholesale propane prices pass through relatively quickly to retail propane prices and many propane users buy supplies ahead of the winter and refill as needed. When forecasting expenditures, EIA does not account for the fact that propane consumers purchase fuel ahead of its use. EIA assumes consumers pay the prevailing retail price at the time fuel is consumed.
In the 10%-colder-than-forecast scenario, EIA’s expected expenditures for propane are about the same as last winter in the Northeast, with prices that are 16 cents/gal., or 5%, lower than last winter and consumption that is 5% higher. Forecast expenditures in the cold scenario are $108 more than last winter in the Midwest, reflecting prices that are 11 cents/gal., or 6%, higher than last winter and consumption that is up 2%.
In the 10%-warmer-than-forecast scenario, EIA’s forecast expenditures are $486 under last winter in the Northeast, reflecting prices that are 54 cents/gal., or 17%, lower than last winter and consumption that is 11% under. Forecast expenditures are $332 lower than last winter in the Midwest, reflecting prices that are 22 cents/gal., or 12%, lower than last winter and consumption that is 14% lower.
As of Sept. 30, propane spot prices at the Mont Belvieu hub were nearly 60% lower than at the same time in 2018. EIA expects residential propane prices to be lower this winter compared with last winter because of lower crude oil and natural gas prices that feed into weaker prices for retail propane, and because of more abundant propane supplies nationally. EIA’s propane price forecasts reflect inventories that are above average in most regions of the U.S. going into the winter season and U.S. propane production growth that is expected to continue to outpace domestic and international demand growth.
Propane inventories typically build between April and October and begin drawing down in late-September or October when agricultural use rises and temperatures begin to drop. U.S. propane, including propylene, inventories were at 100.6 MMbbl on Sept. 27, which was 15% higher than the five-year average for that time of year. The high U.S. inventories were primarily the result of stocks in the Gulf Coast that stood 23% higher than the five-year average. Further, inventories were well above average in most regions, with the exception of the Midwest, where volumes were closer to the five-year average.
EIA forecasts that U.S. propane production at natural gas plants and refineries will be 12% higher this winter than last winter, total consumption will be 1% higher than last winter, and net exports will be 32% stronger year over year. U.S. consumption and export growth depend on demand for propane as a heating fuel, as a feedstock for petrochemical plants, and as an agricultural fuel. The increases in total consumption and exports are mainly a result of expected growth in the use of propane as a petrochemical feedstock and would be affected by U.S. and global industrial growth. Propane is also used as a fuel for drying agricultural crops, which may contribute to higher-than-forecast Midwest prices if farmers have higher than expected crop-drying demand during the fall harvest.
EIA estimates that U.S. production of propane/propylene was 125,000 bbld, or 6%, higher in the third quarter of 2019 relative to the third quarter of 2018, and propane net exports rose by 85,000 bbld, or 10%, during the same period. Expansion of Enterprise Products Partners’ Houston Ship Channel export facility in the fourth quarter of 2019 could contribute to rising exports in coming quarters.
During this heating season the Northeast region will have an additional source of propane supply when Blackline Midstream reactivates the Providence, R.I. import terminal. In the Northeast, exports leave from the Philadelphia area in the Central Atlantic region, but U.S. imports mostly come into New England.
For its Winter Fuels Outlook, EIA defines the winter season as October through March. The average household winter heating fuel expenditures discussed are a broad measure for comparing recent winters. Fuel expenditures for individual households are highly dependent on the size and energy efficiency of homes and their heating equipment, along with thermostat setting, local weather conditions, and market size.
(SOURCE: The Weekly Propane Newsletter, October 21, 2019, available exclusively by subscription)
