By now, much of the U.S. has experienced at least a taste of autumn and some regions have turned downright chilly. With winter fast approaching, now seems like a good time to zero in on energy prices and heating costs. What should consumers expect and budget for this heating season?
Heating Costs in Check, for Now
As summer was winding down, we took a stab at guessing where prices for heating oil, propane and natural gas would be once cool weather arrived. Back in August, we figured that most heating oil users would see prices a “bit less” in the autumn of 2016 than they paid the year before, while residential propane costs ought to be fairly close to their level of autumn 2015. With the Department of Energy’s number crunchers currently reporting average prices for those fuels every week, we can check up on our earlier predictions.
In the first week of October, the average household paid $1.98 per gallon of propane, same as the first week of last October. At $2.30 per gallon, the average price of heating oil was about 12 cents cheaper than the year before. So, propane and heating oil prices have largely behaved as expected.
From here, users should expect both fuel prices to tick higher. Cooler weather will soon start drawing down stockpiles of fuel in storage, unless the country experiences another freakishly warm winter, similar to the most recent visit from Jack Frost.
Natural gas is more of a surprise. Back in August, benchmark gas futures contracts were trading at about $2.80 per million British thermal units (MMBtu): Pretty cheap by historical standards. We figured gas prices had room to rise by 10% to 15% during the winter, given the likelihood of a colder winter than what most of the country experienced in 2015-2016. Now, just two months later, gas is already up by almost 15%, at around $3.20 per MMBtu. Is a much bigger price increase in the works? Given that roughly half of U.S. homes heat with gas, that’s not merely an academic question. Many household budgets will be affected by the answer.
On Tap: Bigger Bills
We see natural gas prices moving still higher. But not dramatically so. The recent cooldown in the weather, plus long-term forecasts predicting a cold winter, seem to have spooked traders into bidding up gas prices at a time when actual demand is still quite low. What’s more, the latest production data show U.S. gas output declining modestly because of a slowdown in the drilling of new wells.
A severe winter could unleash a true price spike. But if the weather ends up close to normal, gas supplies should be more than adequate to keep prices from skyrocketing. A check on the current level of stockpiles shows 3.7 trillion cubic feet of gas in storage, which is 1.5% more than this time last year. The storage level went on to set an all-time record in the fall of 2015. And with stockpiles likely to keep growing for another few weeks, storage facilities could eclipse that record this year.
Note also that the recent downturn in gas production might not last much longer. Energy companies are putting more drilling rigs back to work now that both oil and gas prices have perked up from their summer doldrums. Most of that activity has been targeting oil, but even oil wells often yield hefty amounts of natural gas that producers capture and send to market as a valuable by-product. Further price increases will only spur more drilling and, eventually, more production.
Our best guess on gas prices this winter: Somewhere in the range of $3.25 to $3.50 per MMBtu most of the time, with perhaps some quick spikes during bouts of cold weather.
What does this all mean for gas users? Moderately higher heating bills. The DOE’s Energy Information Administration thinks that, between somewhat higher prices and projections showing a colder winter than last year’s, the average household will spend about $116 more on gas to keep warm than they did last season.
The news is somewhat worse for heating oil and propane users. The EIA projects households heating with oil (most of which are in the Northeast) will fork out $378 more this winter than last, mostly owing to expectations for substantially colder weather. Ditto for folks heating with propane, who can expect to spend $346 more than last winter.
Insulating Against Price Increases
Obviously, you have to live with whatever weather Mother Nature cooks up this winter. But there are ways to trim your heating bill.
For most homeowners, the key to keeping fuel costs under control is to maximize the efficiency of their furnace or boiler. The American Council for an Energy-Efficient Economy recommends that owners of oil burners have their system cleaned and tuned up by a professional once a year (unless their system uses ultra-low-sulfur fuel). Gas systems should be serviced every two years. ACEEE offers a raft of tips about taking care of various types of heating units on its website, plus advice on efficient operations and ways to improve your home’s insulation.
There are also simple steps that can help cut down on your wintertime energy needs. For instance, folks with forced-air furnaces should remember to change the air filter regularly to make sure the system’s fan isn’t working too hard and wasting electricity. You can cut back on your heating costs by closing the dampers on vents located in areas that don’t need as much heat, such as a basement. Folks with radiators can make them work a bit better by installing foil-covered cardboard reflectors between the wall and the radiator.
And obviously, you can always turn down the thermostat a bit, if you’re feeling hardy. ACEEE estimates that a one-degree decrease translates into a 2% decrease on your bill over time. So, when weighing comfort versus cost savings, at least you’ll be able to decide whether the trade-off is worth it to you.