Higher Home Heating Bills Expected This Winter

Article contributed by Aleena McDaniel, CEPM Student Research Fellow

The U.S. Energy Information Agency (EIA) expects that this winter will bring significantly higher home heating bills because of “expected fuel costs as well as more consumption of energy due to a colder winter.” In its recently released Short-Term Energy Outlook, which included the Winter Fuels Outlook, the EIA expects propane expenditures to rise by 54%, heating oil by 43%, natural gas by 30%, and electricity by 6%. These increases are due to the forecast of a colder winter than last year, as well as increased demand for energy as the economic recovery from the COVID-19 pandemic continues. However, production of various fuels has not ramped up as fast as demand has. Global liquid fuels have fluctuated since the pandemic as economic activity was down during lockdowns in a number of countries, but has now picked up. The EIA believes that economic growth and increasing mobility will continue through 2022. As commercial activity, manufacturing, and travel pick up, there is an increased demand for energy beyond what is needed for heating. Brent crude oil was one of the fuels seeing an increase, from $74 per barrel in September to $80 per barrel in October as increased demand is leading to a steady drawdown of global inventory, while OPEC+ nations have not increased production. The price of gasoline has also seen an increase to $3.18 per gallon, which is almost $1 more than it was in September 2020 and may continue to rise before decreasing to $3.05 in December 2021. This is also due to the rise in crude oil prices. With the winter months coming, the EIA also suspects that the Henry Hub spot price for natural gas will average $5.80 per million BTUs (MMBtu) in the last few months of 2021, a dramatic rise from the sub-$3 levels seen during the pandemic. After January, the Hub prices are predicted to fall because not as much natural gas will be needed. Natural gas is used by almost 50 percent of U.S. homes for heating and is the fuel used for almost 40 percent of electric generation, yet the inventory of stored natural gas is lower this year. “We forecast that U.S. inventory draws will be slightly more than the five-year average this winter, and we expect that factor, along with rising U.S. natural gas exports and relatively flat production through January will keep U.S. natural gas prices near recent levels before downward pressures emerge,” the outlook states. “Given low natural gas inventories in both U.S. and European natural gas storage facilities and uncertainty around seasonal demand, we expect natural gas prices to remain volatile over the coming months, with winter temperatures being a key driver of demand and prices.” The EIA expects demand for coal from the electric power sector to increase in 2021 and continue into 2022. While energy-related CO2 emissions decreased by 11% in 2020 as a result of reduced economic activity due to the pandemic, they are predicted to rise about 8 percent in 2021. The addition of more renewable resources like wind and solar will continue into 2022. As a result of global energy challenges being faced by a number of countries, including China and the European Union, global energy demand is surging as winter is arriving, and the results will be higher energy bills through the winter in the U.S. However, while other countries may face a winter energy crisis with fuel shortages, that is unlikely to happen in the U.S., even with lower inventories, due to adequate domestic production.