Strong El Niño Reduces U.S. Winter Heating Demand, Prices

El Niño is a large-scale warming event that affects temperature and precipitation patterns in the Pacific Ocean, EIA explains. It occurs every three to five years and is caused by warmer-than-normal ocean temperatures in the east-central equatorial Pacific. El Niño events typically last nine to 12 months. The 2015-2016 El Niño was one of the three strongest on record, and contributed to the warm winter weather experienced in the U.S.

In addition to record-high winter temperatures reducing demand for space heating, abundant natural gas supplies and low crude oil prices were major factors in lowering heating fuel prices. Warm winter temperatures reduced the overall number of U.S. heating degree days (HDD), a temperature-based measurement reflecting the heating needs of buildings in a location. At the national level, the number of heating degree days was 18% lower than the previous winter season and 12% lower than the National Oceanic and Atmospheric Administration forecast in September 2015.

EIA notes that nearly half of all U.S. homes use natural gas for space heating. Residential natural gas prices during the winter of 2015-2016 were about 5.6% lower than the prior winter. Throughout this past winter, natural gas inventories remained high. As of April 7, working natural gas in underground storage increased to 1472 Bcf, 69% higher than the level at the same time in 2015. Prices for petroleum-based fuel have also been lower because of falling crude oil prices. Residential fueloil prices were about 29% lower this winter compared to a year earlier. As the El Niño event dissipates and demand increases, refinery fueloil prices are forecast to increase 18% by next winter.

Residential propane prices remained relatively flat during the most recent winter season, averaging 198.0 cents/gal. As of April 22, U.S. propane stocks were up by 2.3 MMbbl to 71.2 MMbbl, 6.5 MMbbl, or 10.1%, higher than a year ago. On average, U.S. households paid 15% less for propane this winter than the previous winter. In the Midwest, which uses more propane than any other region, prices declined by more than 22% from the prior winter. Electricity prices change more slowly than the prices of heating fuels because electricity rates in many areas of the nation are set using regulatory mechanisms with long time-lags, notes EIA. Residential electricity prices fell slightly, declining 0.5% from winter 2014-2015 to winter 2015-2016.