With a colder winter expected this coming season, resulting in higher heating demand, and higher fuel prices due to President Biden’s anti-fossil energy policies, the Energy Information Administration (EIA) is forecasting higher energy bills this winter in its Winter Fuels Outlook. Natural gas bills are expected to be 28 percent higher, heating oil bills 27 percent higher, propane bills 5 percent higher, and electricity bills 10 percent higher. Should temperatures be 10 percent higher than forecast in EIA’s base case, the increases are higher: 51 percent for natural gas, 37 percent for heating oil, 20 percent for electricity, and 36 percent for propane. For example, in the base case, homeowners that heat with oil can expect a winter bill of $2,354. Prices are reported in nominal terms with an expected inflation rate averaging 6 to 7 percent higher this winter compared to last winter.
Natural Gas and Electricity Prices
On average, wholesale natural gas prices are expected to be higher this winter, leading to higher prices for both natural gas and electricity in the retail market. Natural gas prices increased earlier this year because consumption growth outpaced production growth in the first half of 2022. Demand growth resulted from both increased domestic consumption because natural gas to coal switching was more limited due to additional coal plant retirements and increased liquefied natural gas (LNG) exports, as Europe was looking to the United States to help shore up its gas inventories. Europe became overly dependent upon Russian natural gas while refusing to develop their own resources by banning horizontal drilling and hydraulic fracturing as some have urged in the United States.
The Henry Hub natural gas spot price on September 30 was $6.40 per million British thermal units (MMBtu), which is 36 percent higher than last winter’s average. EIA expects residential natural gas prices this winter to be 22 percent higher than last winter and residential electricity prices to be 6 percent higher than last winter.
Heating Oil and Propane Prices
While oil prices increased sharply earlier this year, they have since declined, largely based on market concerns regarding inflation, a recession and slower demand growth due to COVID lockdowns in China. On October 1, the benchmark Brent oil spot price was about $90 per barrel, which was similar to the average from October through March of last winter. EIA expects oil prices this winter to average about $3 per barrel higher than last winter. With oil prices relatively similar to last winter, retail prices for heating oil and propane are driven primarily by trends in the wholesale and retail markets for those fuels. EIA forecasts average retail prices this winter for heating oil to be 16 percent higher than last winter and propane prices to be relatively close to last winter’s average.
Customers in the Northeast rely on heating oil more than in any other region. About 18 percent of households in this region use heating oil as a primary space heating fuel, down from 25 percent a decade ago as an increasing number of homes in the Northeast have switched to natural gas or electricity for primary space heating needs.
Heating oil prices are expected to be 16 percent (64 cents per gallon) higher than last winter. The increase is primarily due to higher refinery margins for heating oil (calculated as the price difference between wholesale heating oil and Brent oil) that have resulted from limited refinery capacity. Refinery closures in the United States amounted to about 1 million barrels per day as a result of lower demand due to COVID lockdowns and to onerous regulations. For winter 2022–23, EIA expects wholesale heating oil margins to average $1.06 per gallon–60 cents per gallon higher than last winter and 71 cents per gallon higher than the previous five-winter average. Besides limited refinery capacity, heating oil margins reflect low inventories and low imports.
Scenario for a Colder Winter
EIA analyzed a 10 percent colder scenario than its base case. Cold weather raises the amount of energy required to keep a house at a specific temperature and with higher demand and low inventories, supply disruptions may result, causing energy prices to increase. Inventories remain below the five-year average for heating oil and propane throughout this winter, driven by reductions in U.S. refining capacity and strong heating-related demand. Natural gas inventories remain below the five-year average as electric power and heating demand remain strong, but natural gas inventories are expected to narrow the gap by the end of winter.
Should temperatures be 10 percent higher than forecast in EIA’s base case, bills will be even higher than last year: 51 percent higher for natural gas, 37 percent higher for heating oil, 20 percent higher for electricity, and 36 percent higher for propane.
Conclusion
The winter fuels outlook is for higher energy prices for most fuels and higher bills for all fuels this winter compared to last winter. This winter is expected to be colder than last winter which increases energy demand and with it, energy prices. However, since the United States is endowed with energy resources, particularly coal, natural gas and oil, the price increases of the magnitude forecast by EIA are unnecessary and reflect the anti-fossil fuel agenda of the Biden Administration. President Biden has limited domestic production of oil and natural gas since taking office on January 20, 2021, and made producing and transporting it more difficult. Consumers will see it in their utility bills this winter.
