Here’s how much US households will pay extra to heat their homes this winter
By Myra P. Saefong
Most U.S. households will see more than a 25% increase in home heating costs
Americans are facing a tough winter, with a government agency warning that most households will see a sharp rise in heating costs this year, as natural gas prices are expected to post their biggest annual percentage increase in 17 years.
U.S. households that primarily use natural gas to heat their homes will likely spend an average of $931 this winter, which runs from October through March, up 28% from last winter, according to the Winter Fuels Outlook. of the Energy Information Administration published on October 12.
Natural gas futures are nearly 73% higher this year, on track for the biggest percentage increase since 2005. The November contract in New York settled at $6.435 per million British thermal units on 12 October. Prices had hit a 14-year high. in August.
About half of US homes use fuel for space heating and water heating.
U.S. natural gas prices rose primarily due to supply-side factors, says Noah Barrett, research analyst for energy and utilities at Janus Henderson. Market access for Appalachian Basin reserves is an issue, he says. There is a significant setback in the construction of new pipelines to transport gas out of the basin, and gas producers are under pressure due to supply chain constraints and cost inflation, he says.
Still, Barrett thinks the United States has enough heating fuel supplies to meet winter demand. The nation has “abundant” natural gas resources and heating oil can be obtained globally, he says. “The problem is price – customers will likely have to pay higher prices compared to recent history.”
Production is expected to continue rising through 2024, says Matt Palmer, executive director, gas, power and climate solutions at S&P Global Commodity Insights. Domestic demand growth, meanwhile, is expected to “moderate” and liquefied natural gas exports will be capped by existing capacity until the second half of 2024. Taken together, this should allow prices to fall from baseline levels. 2022, he says.
According to the EIA, households that primarily use fuel oil are expected to spend an average of $2,354, up 27% from last winter.
The main reason for the sharp rise in the price of heating oil is the impact of the Russian-Ukrainian conflict on the price of crude oil, which is the main driver of heating oil and ultra-low sulfur diesel (ULSD) prices. Head of Refining Americas at S&P Global Commodity Insights. The New York Mercantile Exchange changed its specification for heating oil futures to ULSD in 2013.
Oil consumers are unlikely to see any relief by the start of the heating season, Chowdhury says. An escalation of the Russian-Ukrainian conflict, or unplanned refinery outages, would worsen the price and supply situation, he says, and for prices to fall there would have to be a global economic recession that reduces demand for diesel unrelated to heating.
ULSD futures prices, the benchmark price for distillate also known as the fuel oil contract, settled at $3.9328 per gallon on October 12. Prices are up nearly 69% this year and are on course for the biggest annual rise since 1999.
Fuel oil is primarily used in the Northeast and that’s where the price pain may be “most acute”, says Barrett of Janus Henderson. Fuel oil, meanwhile, should follow crude prices, he says. Barrett has “less confidence” in a major decline in demand for crude oil and distillates over the next few years.
It’s “more optimistic” that consumers will see price relief for natural gas than fuel oil, in part because the United States has abundant gas resources.
The U.S. heating oil market is quite small in the context of global oil demand, and this may be a tailwind for some companies “but for large public oil companies, high heating oil prices will be less of a catalyst for surprises on outsized profits,” says Barrett.
-Myra P. Saefong
(END) Dow Jones Newswire
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