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EIA Winter Fuels Outlook

Hydrocarbon Engineering,

Natural gas

According to the US Energy Information Administration (EIA), approximately half of US households heat with natural gas, and the average household may expect a 5% decrease in winter natural gas expenditures. EIA projects a 10% decline in residential natural gas consumption this year as temperatures are expected to return to closer to normal levels. The savings from lower consumption are partially offset by higher residential prices.

Although EIA forecasts lower Henry Hub prices this winter, current spot prices do not directly translate into lower delivered residential prices. Utilities began buying gas in April for the upcoming heating season, and prices in 2014 have averaged higher than last year. Plus, the rates that utilities charge can be set by state utility commissions a year or more in advance.

Under a 10% colder scenario, EIA projects consumption will be 3% less than last year and expenditures will be 6% greater than last year. Under a 10% warmer scenario, EIA expects a decline of 17% of consumption and 12% in expenditures.

Last winter, gas fired power plants in the Northeast had to compete for an increasingly limited amount of available natural gas pipeline capacity from a system that was already constrained, particularly in New England and New York. This caused natural gas spot prices and consequently day-ahead power prices to spike. Pipeline constraints still exist in the area, and day to day price volatility is likely.

The region has two important marginal sources of supply for times of very high demand: LNG imports and pipeline imports from Canada. Although LNG imports have declined dramatically in the past several years, GDF Suez still receives cargoes from Trinidad under long term contracts at its LNG terminal near Boston. One of the terminal’s customers is the adjacent Mystic Power Plant. LNG received at the Canaport LNG terminal in new Brunswick, Nova Scotia, also comes to the US via the Brunswick pipeline.

Strong production growth this year contributed to a record inventory build. EIA anticipates working natural gas inventories of 3532 billion ft3 at the end of October. EIA expects working gas inventories to be drawn down to 1534 billion ft3 at the end of March 2015. Even in the event of another cold winter, EIA does not expect stocks to fall below 1000 billion ft3 by the end of this heating season.

Heating oil

EIA expects households heating primarily with heating oil to spend an average of US$ 362 (15%) less this winter than last winter, reflecting prices that are US$ 0.25/gal. (6%0 lower and consumption that is 10% lower. Heating oil prices are expected to be lower in large part because of lower crude oil prices, with Brent crude oil prices forecast to average US$ 9/bbl (US$ 0.22/gal.) lower this winter than last. In the 10% colder weather scenario, projected expenditures are US$ 124 lower than last winter, with prices that are US$ 0.16/gal. lower than last winter.

The EIA holds that a number of factors contribute to uncertainty in this winter’s heating oil market, including weather and oil price volatility, the adequacy of inventories, and changes in fuel specifications. Distillate stocks in the Northeast totaled 29.3 million bbls on 26 September, 0.2 million bbls below the same time last year and the lowest level for this time of year since 2000. However, unless severe weather in the Northeast coincides with severe weather in Europe, demand should be readily met via supplies from the Atlantic Basin market.

Reliance on heating oil is highest in the northeast, where approximately 23% of households depend on hating oil for space heating. Only 5% of households nationwide use heating oil. The state of New York, which accounts for approximately one third of the region’s heating oil market, has required the use of ultra low sulfur heating oil since July 2012. Five states – Connecticut, Massachusetts, New Jersey, Rhode Island, and Vermont – lowered their heating oil maximum sulfur specification on 1 July from 2000 ppm to 500 ppm. No major impact is expected as suppliers will either blend high sulfur distillate with ultra low sulfur diesel (ULSD) or deliver ULSD, which is a readily available fuel.

In January 2015, new regulations are to limit marine vessel fuel sulfur levels in certain coastal waters to 1000 ppm. Some vessels are expected to switch from using residual fuel oil to distillate because of its lower sulfur content. However, the effect on the Northeast heating oil market should be limited because marine fuel demand in the region is relatively small.


Approximately 5% of all US households heat with propane. The EIA expects these households to spend less this winter, but the projected decrease varies across regions. EIA expects that households heating with propane in the Midwest will spend an average of US$ 767 (34%) less this winter than last winter, reflecting prices that are approximately 24% lower and consumption that is 13% lower than last winter. Households in the Northeast are expected to spend an average of US$ 340 (13%) less this winter, with average prices that are approximately 5% lower and consumption that is 9% lower than last winter.

Heading into the winter months, primary propane stocks in the Gulf Coast (PADD 3) and the Midwest (PADD 2) at the end of September were 6.6 million bbls (18%) and 3.7 million bbls (15%) higher, respectively, than at the same time last year. Propane spot prices at the Mont Belvieu, Texas and Conway, Kansas delivery points in early October were close to prices at the same time last year. The outlook for propane demand is uncertain given volatility in winter temperatures and another expected record corn crop, which could draw down propane stocks for crop drying. The Cochin Pipeline, which previously delivered propane from Canada to the Midwest, was reversed in early 2014. While this reversal will limit the availability to deliver propane into the region, higher propane production from gas plants in the Midwest and new and expanded rail terminals should help to supply propane to the region this winter.

Adapted from a press release by Emma McAleavey.

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