Short-Term Energy and Winter Fuels Outlook

Monthly Energy Review, Oct, 2005

The impact of hurricanes Katrina and Rita on oil and natural gas production, oil refining, natural gas processing, and pipeline systems has further strained already-tight natural gas and petroleum product markets on the eve of the 2005-2006 heating season. The combined Short-Term Energy and Winter Fuels Outlook from the Energy Information Administration (EIA) provides a current view of domestic energy supply and prices and provides projections for average household heating expenditures this winter by fuel and by region; baseline forecasts for domestic fuel markets; and projections for international petroleum demand, supply, and price.

Average Winter Heating Expenditures. The hurricane-induced loss of crude oil and natural gas production from the Gulf of Mexico region and disruptions to nearly half of the U.S. refining industry located in the region have resulted in significantly higher natural gas and petroleum product prices in U.S. markets. These developments are expected to carry very high prices for heating fuels (and other products) into the coming heating period.

This winter, residential space-heating expenditures are projected to increase for all fuel types compared to year-ago levels (see table). On average, households heating primarily with natural gas are expected to spend about $350 (48 percent) more this winter in fuel expenditures. Households heating primarily with heating oil can expect to pay, on average, $378 (32 percent) more. Households heating primarily with propane can expect to pay, on average, $325 (30 percent) more this winter. Households heating primarily with electricity can expect, on average, to pay $38 (5 percent) more. These averages provide a broad guide to changes from last winter, but expenditures for individual households are dependent on local weather conditions, the size and efficiency of individual homes and their heating equipment, and thermostat settings.

The National Oceanic and Atmospheric Administration projects a 3.2 percent colder winter than last year. If colder weather prevails, expenditures will be significantly higher.

Energy Product Prices. Prices for petroleum products and natural gaz will remain high due to tight international supplies of crude oil and hurricane-induced supply losses. Under the baseline weather case, Henry Hub natural gas prices are expected to average around $9.00 per thousand cubic feet (mcf) in 2005 and $8.70 per mcf in 2006. Retail gasoline prices are expected to average close to $2.34 per gallon in 2005 and about $2.45 in 2006. Residential electricity prices are expected to average 9.3 cents per kilowatthour (kwh) in 2005 and 9.5 cents per kwh in 2006, with significant regional differences depending on the fuel mix used to generate electricity in each region of the country. Under a colder weather scenario, prices for natural gas and all petroleum products are projected to be somewhat higher.

The Short-Term Energy Outlook contains forecasts for crude oil prices, demand, and production; prices and inventories for distillate fuel oil, motor gasoline, and propane; electricity demand and prices, coal demand and prices; and natural gas demand, production, prices, and storage. The report includes a "Summer Motor Gasoline Outlook" in April and a "Winter Fuels Outlook" in October.

Short-Term Energy Outlook is available on the EIA Web site at http://www.eia.doe.gov/steo. Questions about the contents of the report should be directed to Dave Costello, Office of Energy Markets and End Use, at dave.costello@eia.doe.gov or 202-586-1468. For general information about energy, contact the National Energy Information Center at infoctr@eia.doe.gov or 202-586-8800.

U.S. Average Winter Fuel Expenditures Are Expected to be
Significantly Higher

                                                 Forecast for Winter
                                                     2005-2006
                        Winters
                       1999-2004    Winters
        Fuel            Average    2004-2005   Warmer   Base    Colder

Natural Gas
  Price ($/mcf *)        8.41        11.13      15.32   15.95    16.68
  Expenditures ($)        586          742        964   1,096    1,242

Heating Oil
  Price ($/gallon)       1.35         1.92       2.34    2.54      2.8
  Expenditures ($)        865        1,199      1,326   1,577    1,893

Propane
  Price ($/gallon)       1.29         1.64       1.91    2.05     2.25
  Expenditures ($)        885        1,102      1,215   1,427    1,700

Electricity
  Price ($/kwh **)       0.08         0.09       0.09    0.09     0.09
  Expenditures ($)        685          717        719     755      791

Average Expenditures      668          786        929   1,044    1,176

                         Percent Change From
                            Last Winter

        Fuel           Warmer   Base   Colder

Natural Gas
  Price ($/mcf *)       37.7    43.4    49.9
  Expenditures ($)      29.8    47.6    67.3

Heating Oil
  Price ($/gallon)      21.7      32    45.4
  Expenditures ($)      10.6    31.5    57.9

Propane
  Price ($/gallon)       16     24.8     37
  Expenditures ($)      10.3    29.5    54.3

Electricity
  Price ($/kwh **)      3.4      3.4    3.3
  Expenditures ($)      0.3      5.4    10.4

Average Expenditures    18.1    32.9    49.6

Expenditures are based on typical per-household consumption.

* thousand cubic feet.

** kilowatthour.

Source: Energy Information Adminsitration.