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EIA Revises Winter Fuel Cost Projections Down Slightly

December 13, 2004
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EIA Revises Winter Fuel Cost Projections Down Slightly

Due to lower petroleum and natural gas prices, the Energy Information Administration reported in its latest Short-Term Energy Outlook that it has marginally reduced its projections of winter heating fuel prices and winter household heating fuel expenditures.

The government agency said heating oil expenditures by typical Northeastern households are now expected to average 34% above last winter's levels, with residential fuel prices averaging $1.85 per gallon for the October-March period. Likewise, expenditures for propane-heated households are expected to increase about 22% this winter.

"Expected increases in expenditures for natural gas-heated households have also been lowered in this Outlook to 9%," the EIA said. "The reduction expected in expenditures for all three fuels, relative to last month's estimates, reflects reductions in both prices and projected usage."

In the last outlook released in early November, the EIA said heating oil expenses for typical Northeast households were expected to average about 37% above last winter's level, while propane-heated households could expect increased heating expenditures of about 26% this winter. The old outlook also had gas-heated households seeing a 15% bump.

The agency pointed out that the average Henry Hub natural gas spot price was $5.15/Mcf in September and $6.54/Mcf in October. However, the EIA noted that as Gulf of Mexico production recovered from the impact of Hurricane Ivan and mild November weather restrained heating demand, spot prices for natural gas fell to under $5.00/Mcf on Nov. 19.

As for the possibility of prices going even lower, the EIA said it would not count on it. "With the peak winter weather closing in, natural gas prices are poised to rise over the next several months," it said. "Henry Hub prices are expected to average $6.03/Mcf in 2004 (compared to $5.64 in 2003) and $6.01/Mcf in 2005. These price projections are lower than last month due to continued high natural gas inventories."

On the demand front, EIA said continued economic growth could increase natural gas demand by 3.7% in 2005. With continued high rates of drilling for natural gas in North America, 2005 domestic natural gas production is only projected to increase by 1.9%, the agency said.

Despite the offset in supply and demand growth projections, the EIA said that steady increases in liquefied natural gas imports, restrained export growth, and carryover from the currently robust storage levels are expected to contribute to "moderate improvement" in the supply picture in 2005.

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