U.S. Heating Bills Expected to Shrink with Milder 2014-15 Winter

A year after adding the term “polar vortex” to their vocabulary – and feeling its biting financial impact – Americans can look forward to spending less money to keep their homes warm this winter, whether they heat with natural gas, fuel oil, propane, or electricity, government energy-watchers said on Tuesday.

The key driver behind the sunny spending outlook is a relatively mild forecast for winter 2014-15, the U.S. Energy Information Administration said. Combined with better-than-expected replenishment of fuel stocks in the past several months, that means households can expect to spend from 2 percent to 27 percent less during the “home heating season,” defined as running from October through March. (Take the quiz: What You Don’t Know About Home Heating)

About half of U.S. households rely on natural gas for space heating and more than a third use electricity, the primary heat source in the South. Natural gas prices are actually expected to be higher this winter compared to last year, but the EIA said record storage injections and increased production throughout winter will limit the price rise to just 6 percent, which should be more than offset by decreased demand. A similar story is expected to unfold with electricity.

The biggest winners this winter could be those who heat with propane—people who were particularly hard hit last winter, especially in the Midwest, home to more propane users than any other region in the country. A variety of factors contributed to propane shortages and high prices last season, from the cold weather to increased demand for the fuel by farmers who used it to dry corn after a late and wet harvest season. (See related, “Propane Shortages Leave Many U.S. Homeowners in the Cold.”)

This winter, it should be a different story: Temperatures in the Midwest are forecast to be 16 percent warmer than in 2013-14, and the EIA said that as of late September, propane stocks were 17 percent higher than at the same time last year “and are at the highest level for any week since at least 1993.” As a result, the average price of propane is expected to fall by 24 percent, with total heating expenditures down 34 percent.

Fuel oil isn’t nearly as common a heat source as it once was, but about a quarter of Northeast households still rely on it, and these folks too will get a price break this winter, with prices down 6 percent and total fuel bills for the season expected to fall 15 percent.

If there’s a cautionary note in the EIA outlook, it’s aimed at New England, where the winter of 2013-14 was especially rough.

Record cold spells this past winter drove up demand for natural gas in the region. The fuel is also used increasingly to generate electricity, but pipeline infrastructure has failed to keep up with the growth. That led to what the EIA called “extreme price spikes in spot natural gas and electricity prices in New England during January and February 2014.” The agency said constraints this winter could “produce periods of localized higher wholesale pricing.” (See related, “U.S. Electricity Rates Spike After Years of Slow Growth.”)

Of course, the biggest wild card in the outlook anywhere and everywhere is the weather forecast. For those who put stock in such things, the Old Farmer’s Almanac is predicting a colder-than-normal winter in the Midwest and East. The EIA said that if the weather does turn out to be 10 percent colder than government forecasters expect, households that use electricity and natural gas for heating will see their total bills rise, though in single digits, while heating oil and propane users will still end up paying less overall than they did last winter thanks to lower fuel costs.