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EIA Short-Term Energy and Winter Fuels Outlook

The Energy Information Administration released its annual Short-Term Energy and Winter Fuels Outlook on October 8. Overall, EIA projects average U.S. household expenditures for natural gas and propane will increase by 13 percent and 9 percent, respectively, this winter heating season (October 1 through March 31) compared with last winter. Projected U.S. household expenditures are 2 percent higher for electricity and 2 percent lower for heating oil this winter. Although EIA expects average expenditures for households that heat with natural gas will be significantly higher than last winter, they are still lower than the previous 5-year average.
This data came out too late to be included in Fuel Oil News’ winter fuel outlook that ran in October. It is in general alignment with the industry experts cited in that article. We noted that while this should be a better year than the industry has seen recently it probably would not be an extraordinarily good year. The weather could shift that to some extent.
Offered below are some editorially organized highlights pulled directly from the report. One point to note is that our experts in last month’s article tended to reference wholesale prices and this report tends to reference retail prices (unless otherwise noted).

Projected Winter Fuel Expenditures by Fuel and Region
The average household winter heating fuel expenditures discussed in the STEO provide a broad guide to changes compared with last winter. However, fuel expenditures for individual households are highly dependent on local weather conditions, market size, the size and energy efficiency of individual homes and their heating equipment, and thermostat. Forecast temperatures are close to last winter nationally, with the Northeast about 3 percent colder and the West 3 percent warmer.

Heating Oil and Diesel
EIA expects households heating primarily with heating oil to spend an average of about $46 (2 percent) less this winter than last winter, reflecting a 5 percent decrease in prices and a 3 percent increase in consumption. Although winter temperatures are expected to be similar to last winter nationally, weather in the Northeast is expected to be 3 percent colder than last winter. Reliance on heating oil is highest in the Northeast, where about 25 percent of households depend on heating oil for space heating, compared with 6 percent of households nationally. The state of New York, which accounts for about one-third of the region’s heating oil market, has required the use of ultra-low sulfur heating oil since July 2012. A number of other states will begin to move away from higher-sulfur heating oil in the coming years.
Biodiesel production (relative to Bioheat), which averaged 63,000 bbl/d (1.0 billion gallons per year) in 2012, has been rising this year and reached a record level of 128 million gallons (98,000 bbl/d) in July 2013. Biodiesel production is forecast to average about 82,000 bbl/d in 2013 and 87,000 b bl/d in 2014.
Diesel fuel prices, which averaged $3.97 per gallon in 2012, are projected to average $3.93 per gallon in 2013 and $3.76 per gallon in 2014.

Propane
About 5 percent of all U.S. households heat with propane. EIA expects households heating primarily with propane to spend more this winter, but the projected increase varies across regions. EIA expects that households heating with propane in the Midwest will spend an average of $120 (9 percent) more this winter than last winter, reflecting prices that are about 10 percent higher and consumption that is 1 percent lower than last winter. Households in the Northeast are expected to spend an average of $206 (11 percent) more this winter with average prices that are about 8 percent higher and consumption that is 3 percent higher than last year.

Natural Gas
Under the baseline winter weather scenario, EIA expects end-of-October working gas inventories will total 3,830 billion cubic feet (Bcf) and end March 2014 at 1,890 Bcf. The projected 1,940 Bcf inventory drawdown during this winter is similar to the previous five- winters (October 2008 ‘ March 2013) average of 1,940 Bcf. Because storage withdrawals are primarily used to meet winter heating demand, changes in weather can significantly alter winter drawdowns. This year’s Winter Fuels Outlook projects a drawdown of 2,340 Bcf in the cold – winter scenario (heating degree days 10 percent higher than projected), and 1, 560 Bcf in the warm – winter scenario (10 percent fewer heating degree days). In the cold – winter scenario, storage inventories exit the heating season with a projected 1,450 Bcf at the end of March. However, this cold – winter scenario ending stock level is still higher than the average 1,271 Bcf end-of- winter stocks during the previous decade (2000 – 2009), reflecting increases in storage capacity as well as production over the last few years.
About one-half of U.S. households use natural gas as their primary heating fuel. EIA expects households heating with natural gas to spend an average of $80 (13 percent) more this winter than last winter. The increase in natural gas expenditures represents a 14 percent increase in the average U.S. residential price from last winter, with consumption that is slightly lower than last winter nationally. The projected changes in residential natural gas prices this winter range from a 10 percent increase in the West to a 15 percent increase in the Northeast. Several factors contribute to this regional variation, including differences in weather patterns, regional changes in production and pipeline capacity, and differences in regulatory constraints in passing price changes through to customers.

Electricity
The rising cost of generation fuels, particularly natural gas, contributes to a projected increase in the residential price of electricity. During the upcoming winter months, EIA expects the U.S. residential electricity price to average 11.9 cents per kilowatt-hour, which is 2.3 percent higher than the winter of 2012-13.
About 39 percent of all U.S. households rely on electricity as their primary heating source, ranging from 14 percent in the Northeast to 63 percent in the South.

Wood
The use of cord wood and wood pellets as the primary residential space heating fuel has increased by 39 percent since 2004, to about 2.5 million households in 2012. About 8 percent of households use wood as a secondary source of heat, making wood second only to electricity as a supplemental heating fuel. About 20 percent of New England homes (1.1 million) used wood for space heating, water heating, or cooking in 2009 (EIA, Residential Energy Consumption Survey, 2009), which is nearly twice the national rate. Almost half of all rural households in New England used wood compared with only 12 percent of the area’s urban households that used the fuel.

Gasoline
The weekly U.S. average regular gasoline retail price fell by 18 cents per gallon during September, ending the month at $3.43 per gallon. EIA’s forecast for the regular gasoline retail price averages $3.34 per gallon in the fourth quarter of 2013. The annual average regular gasoline retail price, which was $3.63 per gallon in 2012, is expected to be $3.52 per gallon in 2013 and $3.40 per gallon in 2014.

Crude Oil
Brent crude oil spot prices fell from a recent peak of $117 per barrel in early September to $108 per barrel at the end of the month as some crude oil production restarted in Libya and concerns over the conflict in Syria moderated. EIA expects the Brent crude oil price to continue to weaken, averaging $107 per barrel during the fourth quarter of 2013 and $102 per barrel in 2014. Projected West Texas Intermediate (WTI) crude oil prices average $101 per barrel during the fourth quarter of 2013 and $96 per barrel during 2014.

Price Summary
2011 2012 2013 2014

WTI Crude Oila
(dollars per barrel) 94.86 94.12 98.69 96.21
Brent Crude Oil
(dollars per barrel) 111.26 111.65 107.96 102.21
Gasolineb
(dollars per gallon) 3.53 3.63 3.52 3.40
Dieselc
(dollars per gallon) 3.85 3.97 3.93 3.76
Heating Oild
(dollars per gallon) 3.66 3.79 3.77 3.62
Natural Gasd
(dollars per thousand cubic feet) 11.03 10.66 10.76 11.90
Electricityd
(cents per kilowatthour) 11.72 11.88 12.16 12.33

a West Texas Intermediate.
b Average regular pump price.
c On-highway retail.
d U.S. Residential average.
Source: EIA

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