This article was originally published by The Buffalo News
Bring out the sweaters and turn down the thermostat: It’s going to be a lot more expensive to heat your home this winter.
In fact, it’s likely to be the most expensive winter for heating bills in eight years, with costs expected to jump by an average of 43%, according to a forecast from National Fuel Gas Co.
That big jump will be costly, pushing up average costs by an estimated $215 during the five-month heating season that starts in November and runs through the end of March.
If the winter weather is normal – and unusually cold temperatures could push bills up even higher – the average National Fuel customer can expect to pay $713 this winter to heat their home. That’s up from $498 last winter and $493 the year before.
The culprit: Soaring natural gas prices, which have more than doubled over the past year because of rising demand as the economy has recovered from the Covid-19 slowdown, while domestic gas supplies have dropped.
The spike in bills will be a harsh reality check for consumers, who have enjoyed sharply lower winter heating costs for most of the past decade, thanks to a boom in low-cost production from shale gas producers, including many in western Pennsylvania.
As a result, it’s been seven years since the average winter heating bill in Western New York even topped $600. During the unusually warm winter of 2015-16, the average winter bill dropped below $400.
Over the last two winters, consumers hit the jackpot with a combination of low natural gas prices and temperatures that were warmer than normal, which allowed them to use less gas. With prices down, consumers also turned up the heat a bit, using about 3% to 5% more gas than they did a decade ago, said Karen Merkel, a National Fuel spokeswoman.
This winter, it’s a much different picture, which likely will strain the budgets of many consumers already grappling with higher unemployment and rising prices on many items, from food to cars.
That will put a renewed focus on both conservation efforts and government programs to help low-income residents pay their heating bills, Merkel said.
“This will definitely be a winter where energy-efficiency tips and practices will be needed,” she said.
“This is the year to really look at how to make homes more energy-efficient,” Merkel said. “Perhaps customers have gotten away from turning their thermostats down when they’re going to be gone all day.”
National Fuel bases its forecast on the assumption that temperatures this winter will return to more normal levels. That would mean a modest increase in the amount of gas the typical customer uses, compared with last year. Warm weather could push bills lower, since consumers would use less natural gas, while cold temperatures would drive bills higher since furnaces would have to run more.
Wholesale price has more than doubled
The main reason for the higher heating bills is the rising demand globally for natural gas as the economy has recovered. Oil producers cut back on drilling during the pandemic, which reduced the amount of natural gas they produced, since most wells pump both oil and gas at the same time.
The demand for liquefied natural gas produced in the U.S. also has jumped, especially in Europe, which is dealing with its own supply crunch. Hurricanes in the Gulf of Mexico this summer also disrupted production there.
As a result, the wholesale price of natural gas, which was $2.74 per 1,000 cubic feet a year ago, had more than doubled to $5.53 on Thursday.
Utilities like National Fuel Gas uses sophisticated hedging strategies to smooth out some of the volatility in gas prices. That’s helped mute some of the impact of the jump in commodity costs, Merkel said.
They also build up their natural gas supplies by pumping gas into underground caverns during the summer, when prices were somewhat lower than today, so it can be stored for use later.
“Storage inventory is full, and that was with the summer gas,” she said. “The summer gas this year was significantly more expensive, but still cheaper than what it’s going at now and what it could be as the winter continues.”
Supplies tight across the country
One advantage for Western New Yorkers is that most of the region’s natural gas comes from nearby Pennsylvania, where supplies are robust and prices – while higher than a year ago – remain about 20% below the national spot market price.
Before the shale gas boom, it was common for heating bills to run over $1,000 during a typical winter.
But this winter, supplies also are tighter across the country. The amount of natural gas nationwide that is in storage – a cushion against cold weather or supply disruptions – is about 7% lower than its average over the past five years.
A big reason for that is a 13% drop in the amount of gas that has been pumped into storage during the traditional time to rebuild supplies during the warmer spring and summer months, according to the U.S. Energy Information Administration.
The rising prices also are limiting the programs that other natural gas providers can offer consumers, said Gary Marchiori, the president of EnergyMark, an Amherst energy services company.
State law prohibits energy service companies from offering fixed-price programs that are higher than a local utility’s price over the previous 12 months. Alternative suppliers are able to offer pricing programs that guarantee savings compared with the utility’s rate, he said.
“This effectively prevents a consumer price protection from a rising commodity market,” Marchiori said.
Marchiori thinks the spike in prices could be short-lived. Natural gas production is expected to rise next year, and futures prices are signalling a decline beginning next spring.
“There’s a short-term spike in price, mostly due to this jump in exports,” he said.
Low-income consumers impacted more
The higher heating bills this winter will strain the budgets of low-income consumers, who often use more gas because their homes and apartments tend to be older, draftier and less insulated than residences of wealthier consumers.
Low-income consumers in New York spend between 20% and 40% of their income on energy costs, according to the state Public Service Commission. Nearly 1 in 6 National Fuel customers is considered to be low-income.
National Fuel, like all utilities in the state, does not make a profit on the natural gas that it sells its customers. Its profits come through the delivery charges paid by consumers that are set through negotiations with state utility regulators.
This article was originally published by The Buffalo News