Winter Fuels Outlook: 2001-2002


Consumers of winter heating fuels--natural gas, heating oil, and propane--should benefit from lower fuel prices, generally higher inventories, and the likelihood of milder weather this winter compared with last, according to forecasts in the Energy Information Administration's Winter Fuels Outlook: 2001-2002.

Natural gas
Overall demand for natural gas this winter is expected to drop slightly from last year's level, mainly because of lower winter heating demand. Unusually low temperatures during the winter of 2000-2001 drove heating degree-days to 7 percent above normal. Assuming a return to more normal weather, residential and commercial natural gas consumption is expected to average 6.0 percent and 5.2 percent below last winter's levels, respectively.

Coincidentally, industrial demand for natural gas is down, while natural gas production activity is up 1.8 percent compared with last winter. The result is the collapse of spot and wellhead prices. The prospects for a mild recession suggest that industrial-sector demand is unlikely to recover swiftly. The base-case forecast puts the average natural gas wellhead price at $2.21 per thousand cubic feet, a sharp 62 percent below last winter's average price. The price paid by residential consumers is expected to drop 30 percent to an average of $6.69 per thousand cubic feet (see table).

Illustrative Residential Consumer Prices and Expenditures for Winter Heating Fuels
 

1998-1999

1999-2000

2000-2001

2001-2002
 

Actual

Actual

Actual

Base Forecast

Natural Gas (Midwest)
Consumption (mcf)

84.5

81.7

97.3

90.8
Average Price (dollars/mcf)

6.29

6.67

9.49

6.69
Expenditures (dollars)

532

545

923

607
Heating Oil (Northeast)
Consumption (gallons)

650

644

727

692
Average Price (dollars/gallon)

0.80

1.18

1.37

1.19
Expenditures (dollars)

520

760

996

824
Propane (Midwest)
Consumption (gallons)

835

807

961

897
Average Price (dollars/gallon)

0.85

1.02

1.36

1.13
Expenditures (dollars)

710

825

1,309

1,013
Notes: Mcf = thousand cubic feet. Prices are national averages. Expenditures are based on typical per-household consumption by region. Prices and expenditures are in nominal dollars.
Source: Energy Information Administration.

Heating oil
The chief market for heating oil is the Northeast, where heating degree-days are expected to decline almost 5 percent from last winter's level. In addition, electric utilities are expected to reduce their consumption of heating oil this winter, as are industrial facilities and nonutility power producers. Although transportation- sector demand for diesel fuel is expected to grow, the forecast overall effect will be to depress distillate fuel oil demand by about 2.5 percent.

Supplies--from domestic refinery output, net imports, and primary inventories--are projected to be adequate, even if cold snaps cause demand to spike. As for prices, the weaker economy and expected milder winter should help push down crude oil costs to U.S. refineries by nearly 20 percent below last year's level. Base-case retail heating oil prices are projected to average $1.19 per gallon during the heating season.

Propane
Propane demand last winter fell from the previous year's level and is expected to decline further this winter, suppressed by the economic slump and a smaller corn harvest, which will reduce the need for crop-drying propane. Supplies are expected to be adequate and prices lower.

Effects of extreme weather
Relatively ample supplies of heating fuels should reduce the risk of weather-linked price shocks. A winter 10 percent colder (or warmer) in degree-days than is assumed in the base case might raise (or lower) household heating bills about 13 percent in the case of natural gas and about 15 percent in the cases of heating oil and propane.


Winter Fuels Outlook: 2001-2002 is available only on the EIA website.

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File last modified: October 25, 2001