Fuel Prices Poised To Rise This Winter Despite Good Supply
HOMEOWNERS will pay up to 18 percent more to heat their homes this winter due to colder weather and higher fuel prices, forecasters say.
Even normal weather this winter will produce a rise in demand. The Energy Information Agency predicts temperatures averaging 9 percent colder than were felt during the mild 1991-92 winter. That translates into an equal increase in demand for heating oil and natural gas, the EIA and the American Gas Association (AGA) say.
The nation's 90 million households are heated by natural gas (57 percent), electricity (26 percent), heating oil (12 percent), and other fuels, according to federal government data.
"Last year, natural gas prices were extremely low as a result of low demand from the unusually warm winter," notes Michael Baly, AGA's president.
Tom Robinson, director of natural gas research for Cambridge Energy Research Associates, says natural gas sells for $2.40 per thousand cubic feet (Mcf) on the spot market today, compared with $1.75 last fall and $1.20 in February.
However, natural gas will cost more this winter regardless of weather-related demand, the AGA says. "We don't expect a crisis," adds Mr. Robinson, but low prices did stimulate demand while discouraging development of new gas fields. Robinson foresees "a tighter market balance," but not one that will restrict availability.
The AGA expects producers to raise prices to $2.22 per Mcf from last year's average of $1.64.
The price shock will be felt more by industries than households, Robinson notes. Industries pay far less proportionately than households do for a utility's cost of transportation and distribution. So the cost of the natural gas put in the pipeline is a greater part of the industry's total fuel bill, while for consumers it is only one-third. That means industries have benefited greatly from low gas prices but will feel increases more sharply. Households have not saved much from low prices, but will be som ewhat cushioned when prices go up.
What's more, if cold weather does drive up household consumption of natural gas, local utilities will be able to spread their fixed transmission and distribution costs over the greater volume. The AGA estimates that those costs would fall to $3.80 per Mcf from $3.92 per Mcf. The net result for households in the AGA forecast is a 46-cent net increase to a national average price of $6.02 per Mcf. Last year the winter-long national average heating bill was $373 for natural gas. If normal weather boosts cons umption, the bill will increase 18 percent to $440.
The $6.02 per Mcf price for natural gas is equivalent to heating oil at $0.81 per gallon, the AGA says. The demand for heating oil that the EIA anticipates - the highest in 13 years - would be "the major factor" contributing to an 8-cent rise in the average price, to $1.03 per gallon, the agency predicts.
Natural gas not only costs less than oil, but the price fluctuates less, the AGA says. Over the past five years, the price of natural gas has risen 7 percent during the peak months of January and February. Heating oil prices have changed by up to 61 percent.