Will the Middle Class Feel the Pain of Obama's Energy Freeze?

The Energy Information Administration (EIA) just released its Winter Fuels Outlook and its October Short-Term Energy Outlook. EIA’s forecast for heating oil prices and heating fuel bills is grim as both are expected to increase.[i] This winter, defined by EIA to be October 1, 2012 to March 31, 2013, household expenditures for heating oil and natural gas are expected to rise by 19 percent and 15 percent, respectively.

But, thanks to the private sector and hydraulic fracturing technology, the increase in natural gas bills will not be felt as much as the increase in heating oil bills. That is because natural gas prices are at abnormally low rates while heating oil prices are at record highs. Heating oil users — primarily in the Northeast — will see the highest rise in expenses in history, with prices rising to a record high of $3.81 per gallon, which is 8 cents higher than last year. Increases in household expenditures for propane and electricity are projected to be less, 13 percent and 5 percent higher, respectively.

About half the households in the United States heat their homes with natural gas. EIA expects those households to spend about $89 more this winter than last primarily because of a projected colder winter than last year’s winter. For those homes heated with fuel oil, however, the EIA expects those bills to be $407 more, 4.6 times more than the increase in natural gas bills. About 6 percent of U.S. homes use heating oil as their primary fuel, but 80 percent of them are located in the Northeast. Adding to the tight fuel oil market are low distillate stocks on the East Coast and Gulf Coast, which provide over 60 percent of the Northeast’s supply, and New York’s switch from higher sulfur heating oil to heating oil that contains less than 15 parts per million sulfur (ultra low sulfur heating oil).

Energy Prices in Obama’s First and Fourth Years

Using EIA’s table query system, which is part of their Short-Term Energy Outlook, we investigated energy prices in Obama’s first and fourth year in office. The prices below are annual average prices for 2009 and projected prices for 2012. As one can see, all crude oil and petroleum product prices are 49 to 82 percent higher over this 4-year period.

Source: Energy Information Administration, http://www.eia.gov/forecasts/steo/

The natural gas price, however, is almost 28 percent lower due primarily to hydraulic fracturing and horizontal drilling technology that has made shale natural gas not only economic, but plentiful as well. In 2011, the United States produced 23 trillion cubic feet of natural gas, 7.8 percent more than it did in 2010 and 11.5 percent more than it produced in 2009. Further for the first 6 month of 2012, natural gas production was 6.4 percent higher than for the first 6 months of last year. This increase in natural gas production and its decrease in price did not occur because of actions taken by the Obama Administration, but in spite of those actions, which can be demonstrated by the fact that natural gas production on federal lands is 17 percent less in fiscal year 2011 than it was in fiscal year 2008.[ii]  All of the increase in supplies of natural gas leading to the drop in prices has happened on non-government lands.

Conclusion

Are we better off now than in 2009? Not when we look at energy expenditures as a percent of Gross Domestic Product. In 2009, energy expenditures were 7.6 percent of GDP, and in 2011, they were 9.4 percent of GDP. And, certainly from an oil and petroleum product perspective, prices in the United States are projected to be substantially higher this year than when President Obama first took office.  This is a shame given that we have 1.4 trillion barrels of technically recoverable crude oil right here in the United States just waiting for the right policies to be put in place to access them for development.[iii]  A fair share of those resources is oil shale—an unconventional oil resource mostly lying on federal lands that the Obama Administration has substantially closed off to development.[iv]   If Americans are going to enjoy the substantial benefits of lower-priced energy in the future, government policies must change.