Heating expenditures, propane inventory up in winter outlook

Higher projected U.S. household winter propane expenditures compared to last year and soaring U.S. propane inventory highlight the U.S. Energy Information Administration’s (EIA) annual Winter Fuels Outlook, released Thursday, Oct. 13.

Despite the increase in projected home-heating expenditures from last year, when heating demand and propane prices were low, U.S. households using propane will spend less on heating this winter than in eight of the past 10 winters, according to EIA.

The projected increase in expenditures from last winter varies by region. EIA expects that households heating with propane in the Midwest will spend an average of $290 (30 percent) more this winter than last winter, reflecting prices that are about 14 percent higher and consumption that is 13 percent higher than last winter.

Households in the Northeast are expected to spend an average of $346 (21 percent) more this winter, with average prices that are about 7 percent higher and consumption that is 13 percent higher than last winter. However, average propane expenditures across the two regions are 18 percent below average expenditures from the five winters prior to last winter.

Propane inventories, which were at record-high levels throughout last winter, are going into this heating season at even higher levels. U.S. propane inventory reached 104 million barrels as of Sept. 30, almost 4 million barrels (4 percent) higher than at the same time last year, EIA reports.

The high-inventory scenario was discussed at the National Propane Gas Association’s (NPGA) fall board of directors meeting earlier this month in Asheville, North Carolina. Still, industry leaders say they are remaining vigilant when it comes to propane supply, recalling the challenging 2013-14 winter and preparing a list of next steps and key resources should disruptions occur.

“All PADDs are expected to stay healthy,” says ThompsonGas’ George Koloroutis, chair of the NPGA Propane Supply and Logistics Committee. “But our memories are good enough to remember how quickly it could change.”

Last winter, 33.8 million barrels of propane inventory were drawn during the heating season – October through March. An inventory draw of 40.6 million barrels is expected this winter. The projected draw would leave inventories 32 percent above the previous five-year average at the end of the heating season in March.

Current inventory levels should be sufficient to allow for even stronger-than-projected inventory draws given colder weather, higher crop drying use or stronger exports, EIA says. With the addition of new export facilities over the past several years and a new Gulf Coast terminal expected to begin operations later this month, the United States has the capacity to support higher-than-forecast levels of propane exports when spot shipments are economically viable.

Gulf Coast inventory has been the main contributor to the record-high storage levels, EIA says, with propane inventory in that region 55 percent above the previous five-year average for the week ending Sept. 30. Much of this storage is at facilities connected to industrial users and export terminals, and transport of the propane to the Midwest and Northeast is often costly.

However, propane inventory in the Midwest and Northeast are 9 percent and 42 percent above the five-year average, respectively, as of Sept. 30, EIA says. Higher inventory levels and improved rail delivery networks for propane should contribute to more robust propane supply chains than three years ago, when the Midwest saw prices spike during extremely cold weather. However, local markets could still see tight supply conditions, particularly in cases of severely cold temperatures, EIA adds.

“We have built a lot of rail facilities in states to replace the Cochin (Pipeline), and that has not been tested yet,” says Jerry Brick of North Star Energy in Aberdeen, South Dakota. “It’s not keeping us awake at night, but it is a concern.”

When considering all fuels, EIA says, most U.S. households can expect higher heating expenditures this winter compared to last winter.

Winter heating expenditures for most fuels were especially low last winter, when energy prices were relatively low and warm weather reduced heating demand to the lowest level nationally in at least 25 years, the agency says. Although expenditures for nonelectric fuels are expected to be higher than last winter, expenditures are comparable to or lower than the average winters from 2010-11 through 2014-15. By comparison, electric heating prices and expenditures are expected to remain relatively stable.

Winter heating expenditures are a function of expected fuel prices and demand for heating. EIA’s projections of heating demand are based on the most recent temperature forecasts from the National Oceanic and Atmospheric Administration (NOAA), which reflect weather that would be 13 percent colder than last winter but about 3 percent warmer than the previous 10-year average. Because weather patterns present great uncertainty to winter energy forecasts, EIA’s Winter Fuels Outlook includes projections for 10 percent colder and 10 percent warmer scenarios. In the past five winters, actual temperatures have been more than 10 percent colder than NOAA’s September forecast once and more than 10 percent warmer than forecast twice.

The average household winter heating fuel expenditures in EIA’s forecast provide a broad guide to expected heating expenditures. Fuel expenditures for each household are highly dependent on the size and energy efficiency of individual homes and their heating equipment, indoor temperature preferences and local weather conditions.

The choice of primary heating fuel varies considerably by region, resulting in regional differences in total expenditures. Natural gas is the most common space heating fuel in every region except the South, where electric heating is more prevalent. Heating oil is much more common in the Northeast than in other regions, while propane is more common in the Midwest. EIA says nearly 5 percent of all U.S. households heat primarily with propane.

Almost half of U.S. households use natural gas as their primary heating fuel. EIA expects households heating with natural gas to spend an average of $635 this winter, which would be 22 percent higher than last winter but nearly equal to the average expenditures for the five winters prior to last winter. EIA projects natural gas inventories will total 3,966 billion cubic feet at the end of October, which would be near a record high going into the heating season.

EIA expects households heating primarily with heating oil to spend an average of $378 (38 percent) more this winter than last winter, reflecting retail prices that are 20 percent higher and consumption that is 15 percent higher. Despite the higher forecast expenditures, expected average household heating expenditures this winter are about 32 percent lower than in the five winters prior to last winter.

Households heating primarily with electricity are forecast to spend an average of $49 (5 percent) more this winter, as a result of 5 percent higher consumption, including both heating and non-heating uses of electricity, and about 1 percent higher residential electricity prices than last winter. Among U.S. households, 39 percent rely on electricity as their primary heating source, ranging from 63 percent in the South to 15 percent in the Northeast.

The number of households using cord wood or wood pellets as the primary residential space heating fuel has increased by 26 percent since 2005, to about 2.5 million households in 2015. About 8 percent of households use wood as a secondary source of heat, making wood second only to electricity as a supplemental heating fuel.