Heating cost forecast

It's a rare treat in pricing, but sometimes what goes up does come down. Due to new drilling technologies and an abundance of supply being generated on American soil, natural gas prices have dropped by 60 percent since 2008.
Marie Havenga
Nov 2, 2012

But before you start feeling warm and fuzzy about more cash in your pocket, read on — and grab a jacket. Experts predict that those savings could be blasted by colder — albeit more normal —temperatures this winter.

The National Oceanic and Atmospheric Administration forecasts an 18 percent increase in the number of days we'll have to turn on the heat this winter compared to last year.
Even though the coming winter is expected to be 2 percent warmer than the 30-year average, the federal agency said it would be 20-27 percent colder than last year.

Wayne Hoepner, a National Weather Service meteorologist in Grand Rapids, said the winter months averaged more than 5 degrees above normal last year.

“We're expecting temperatures to be closer to normal this year,” he said.

That means even though natural gas prices have slumped, your bill likely will not because you'll be using more heat.

Michigan Gas Utilities spokesman Paul Livernois said natural gas cost about $1.29 per 100 cubic feet in 2008. This year, 100 cubic feet costs 40 cents.

“These are the lowest natural gas prices our customers have seen in over 10 years,” Livernois said. “The supply of natural gas as a result of what's going on in the continental U.S. today is phenomenal. It's helping not just residential customers stay warm at a more affordable price, it's also helping commercial and industrial applications.”

Several years ago, engineers discovered “fracking,” a new technology that drills horizontally for natural gas within the earth, not just vertically. That method has been used extensively in the U.S., leading to abundant supplies and lower prices.

According to Livernois, many customers on the utility's budget plan — paying a set amount each month — have seen their bills cut in half.

“Keep in mind there was not a heating season last year,” he said. “If we were to go back to having a normal cold winter, your higher gas bill won't be because of higher gas prices. The cost of natural gas is going to be absolutely the lowest we've had in 10 years.”

Livernois said five years ago, the country relied heavily on offshore production and imported natural gas supplies. All that has turned around.

In the past, the Grand Haven area was mainly supplied by natural gas from the Gulf of Mexico, which was susceptible to hurricanes and wild price fluctuations, according to Livernois. Now, Grand Haven is supplied from land sources in the lower 48 states, he said.

“Now we we have such a surplus in this country, we're going to be looking at exporting natural gas in the near future,” Livernois said. “The future is very bright. I would like to think this is long term. It's better than good news — it's actually fantastic.”

But even with all the good news on the price front, the U.S. Energy Information Administration predicts consumption for natural gas, propane, electricity and fuel oil due to a colder winter will outweigh cost savings. For example, the federal agency said the price of fuel oil is up 2 percent, but estimates fuel oil heating bills will rise 15 percent.

Similarly, the agency projects close to 20 percent more consumption in natural gas and propane.

Midwest residents will spend $734 this season for natural gas, $1,129 for electric heat, $1,711 for propane and $2,494 for heating oil, according to the EIA forecast.

Carl Erickson, who runs Tri-City Oil in Ferrysburg, said he has “no idea” where heating oil prices will hang this year.

“Your guess is as good as mine,” he said. “We get a price list in every day from our suppliers. That's how we know when the prices are changing. When gasoline goes up, fuel oil goes up. You never know what the price is going to be. They jump around a lot.”

One thing is for certain: Propane prices are sinking. They're down 4 percent from last year, according to the Energy Information Administration.

John Bryant, spokesman for ProGas Propane in Grand Haven Township, said he expects a 10-15 percent drop in propane prices compared to last year. Bryant said 50 percent of propane production in the U.S. comes from crude oil and the other 50 percent from natural gas.

Fracking and weather have helped propel propane costs downward, according to Bryant.

“Inventories are probably at an all-time high due to the fact that we had a pretty mild winter last year,” he said. “I would think we're seeing the lowest cost this year than we have in about four years. It all goes back to supply and demand. Anytime we can lower commodity prices, it's good for everyone.”

 

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