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Consumers warm, cozy

If federal government forecasts ring true, energy consumers will benefit from lower fuel costs and plentiful supply this winter heating season.

According to the U.S. Energy Information Administration’s (EIA) recent Short-Term Energy and Winter Fuels Outlook, U.S. households will spend an average of $960 this winter and see an 8 percent decrease in heating fuel costs for an average savings of around $84. Propane and natural gas customers will see the largest drop in costs, at 14.2 percent ($280) and 11.8 percent ($105), respectively. Heating oil customers are predicted to see a drop of 2.2 percent ($40) and electricity 2 percent ($20).

The EIA also predicts demand for propane to drop by 0.6 percent, natural gas by 1.1 percent and heating oil by 1.9 percent; electricity demand is expected to rise 0.1 percent.

Across the board, fuel inventories are currently “well above” levels seen at the start of last winter, according to EIA. The agency estimates propane inventories at 73 million barrels at the end of September, putting propane levels 14 million barrels above last year’s level and 8 million barrels above the end-of-September average over the last five years. Projected propane inventories will end the winter season at about 32 million barrels, 2 million barrels above the average of the last five years.

Similarly, Ron Gist Sr., principal of Purvin & Gertz Inc., reports propane inventories at near-record high levels, and predicts propane storage levels to remain above average.

On the weather front, the government predicts this winter to be 1 percent warmer than last. Significantly, the National Oceanic and Atmospheric Administration predicts the Midwest, a strong market for propane use, to be about 4 percent warmer than last winter. The West is predicted to be about 4 percent colder.

Overall, the fuel outlook for energy consumers looks pretty rosy. However, propane marketers, who have enjoyed strong margins over the past few years, continue to weigh an uncertain economy and concerns about customers’ ability to pay their bills in addition to the usual concerns about weather and supply.

The Northeast-Midwest Institute, a nonpartisan research organization focused on the 18 states that make up the Northeast and Midwest, says economic indicators at the end of September compared to last year look grim: the consumer price index, imports, exports, prime rate, housing starts and domestic product growth, among other leading economic indicators, are all down.

Unemployment rose from 6.2 percent to 9.8 percent in the area, with Michigan, Illinois, Ohio and Rhode Island showing unemployment in double digits.

Diane Devaul, the institute’s director of policy, says she is seeing an increase in lost jobs in the region, with an increase in the number of families that are eligible for Low Income Home Energy Assistance Program [LIHEAP] funds.

While the final bill has not yet passed, Congress is expected to fund LIHEAP for fiscal year 2010 at last year’s level of $5.1 billion. The difference with this year’s bill is that this funding level includes more than $590 million that will be held back by the president to be released as contingency funds. This can be a mixed blessing for states that implement these funds. Devaul adds that it is not always “when and where it gets cold, but how cold is it and how long does it last?”

Current predictions from the government and analysts count on large fuel inventories across the board to lessen energy prices in case of a colder-than-expected winter. The propane industry knows that you cannot always bank on inventories alone in time of a supply disruption and/or a severe cold snap. For all of the breadth and depth of knowledge of analysts forecasting price, supply and demand, Mother Nature always has the last word.