Home Heating Costs Expected to Spike as Winter Gets Back to 'Normal'

Cold weather heating costs
Cold weather heating costs

New England's dependence on fuel oil for heating is putting the region in the energy crosshairs this winter, with the average heating oil price projected to hit a record $3.81 per gallon.

The National Oceanic and Atmospheric Administration (NOAA) says it currently looks like the US winter will be slightly warmer than normal, but not nearly as warm as last winter in much of the nation.

Last season was "the winter that didn't come in a lot of cases," Michael Halpert, NOAA Deputy Director, Climate Prediction Center, told the National Association of State Energy Officials/Department of Energy Winter Fuels Outlook conference.

This year looks like a return closer to normal -- which means much colder winter temperatures in the central and eastern regions that last year stayed well above forecast temperatures, Halpert said.

Energy Information Administration (EIA) chief Adam Sieminski says that forecast means more days heat will be needed, with consequent higher total household heating bills -- up to 19% higher for fuel oil, even though the price of fuel oil is expected to rise on average only 2% from last year. Other fuel bills will also rise: 15% for natural gas, 13% for propane, and 5% for electric heat, though prices for those fuels will rise little or drop.

Pipeline Bottlenecks, Fuel Switching and LNG

But hidden in the averages are regional differences that make New England, especially, an area of concern, said Bruce Henning, Vice President, Energy Regulatory and Market Analysis, ICF International.

Natural gas, the dominant home heating fuel in much of the country, is in ample supply at low prices. In New England, many householders have been switching from oil to natural gas heat. But New England electric generators are also switching, putting a strain on the limited pipelines delivering into the region from Pennsylvania, the Southeast and Canada.

The region has three liquefied natural gas (LNG) terminals, but LNG is significantly more expensive than pipeline gas.

Henning said power generators usually have non-firm supply, and a peak in winter heating demand could mean no natural gas for some electricity generation.

Moreover, parts of New England have no access at all to natural gas, and about one in four of the area's homes still depend on fuel oil, a far higher percentage than any other part of the nation, according to EIA.

Last season was "the winter that didn't come in a lot of cases," -- Halpert, NOAA

There are positive signs for fuel oil supply. Sieminski said inventories of heating oil are now low because the price has been higher in Europe. That situation has just recently reversed, and more supply is coming to, or staying in, the US.

Another good sign, Sieminski said: A major refinery near Philadelphia, with 16% of East Coast refining capacity, has come back on line after nearly being shut for good. Several pipeline expansions bringing refined products from the southeast have also been completed, he noted.

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But if there's an early cold snap in the Northeast, supplies could be strained and prices could spike, Sieminski warned.

Edward Morse, Managing Director, Global Head of Commodity Research, Citi Group Global Markets, said this year could be a test for the Northeast Home Heating Oil Reserve.

That reserve, established in 2000 after severe winter conditions left some areas short of fuel, was trimmed back last year from 2 million to 1 million barrels, since significant private storage had been built.

Morse said a sustained winter price spike in New England could trigger the first-ever release of reserve supplies.

Sieminski said that, under the law, a decision on any release would be up to the president.

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