Consumers See Savings on Heat Bills
Tuesday, October 2nd 2001, 12:00 am
By: News On 6
NEW YORK (AP) _ As winter weather starts making a gradual appearance across the United States, consumers could see significant savings on their home heating bills, analysts say.
Because of a glut in supply, and weak demand from industrial users, natural gas is 57 percent less expensive than a year ago. Crude oil, from which heating oil is refined, is about 30 percent cheaper per barrel compared with last year.
And with no quick turnaround in sight for the U.S. economy, experts believe the downward pressure on energy prices could persist through December.
``Natural gas prices are a fraction of what they were last year and, on average, consumers should expect tremendous savings,'' said Fadel Gheit, an energy analyst at Fahnestock & Co. in New York.
The Energy Information Administration, the Energy Department's statistical arm, releases its outlook for winter fuels on Thursday. Mary Hutzler, the agency's acting administrator, said the government's forecast ``jibes'' with what industry analysts are predicting, but she would not provide details.
Last winter, Americans paid through the roof to heat their homes as natural gas supplies were extremely tight and demand from industrial users was strong. The wholesale price, which traded around $2.50 per 1,000 cubic feet in the late 1990s, soared above $10 in January.
For a while, natural gas companies raked-in huge profits as they cranked up production, but their aggressive drilling eventually smacked up against a sharp drop in demand as the U.S. economy faltered. Supplies were replenished and prices began to flatten.
The decline in natural gas prices was compounded by the fact that many industrial users switched to less expensive distillate fuels, sapping nearly 5 percent from daily natural gas demand.
The impact has been dramatic. Injections of natural gas into underground storage facilities have been robust since late spring and are likely to continue through early November, said Paul Wilkinson, an economist at the American Gas Association in Washington.
The country had 2.84 trillion cubic feet of natural gas in storage for the week ended Sept. 21, compared with 2.40 trillion cubic feet during the same period in 2000. The wholesale price is now slightly above $2.15 per 1,000 cubic feet, compared with $5 per 1,000 cubic feet at the beginning of last year's home heating season. The average daily demand in the United States is 62 billion cubic feet.
Electricity could also be cheaper, as more than 15 percent of the nation's power is derived from natural gas.
About 51 percent of all homes in the United States are heated with natural gas, according to the AGA. Thirty-two percent use electricity, 9 percent rely on heating oil and the remainder use wood, alternative fuels or have no heat at all.
When it comes to heating oil, which is primarily used in the Northeast, analysts say homeowners could save an average of 30 cents a gallon compared with last year's prices. For example, a household using 600 gallons of heating oil during the October-March season could save $180.
The driving force behind these savings is cheap crude, which traded at $23.28 a barrel Monday on the New York Mercantile Exchange, compared with $33 a year ago.
``Most people think that crude is going to flirt with $20 a barrel before it flirts with $30 again,'' said Tom Kloza, director of Oil Price Information Service in Lakewood, N.J.
Heating oil for November delivery ended Monday at about 66 cents a gallon, about 20 cents below year-ago levels.
Homeowners will experience even more savings, analysts said, if demand remains weak for jet fuel, which is similar to heating oil from a production standpoint.
Airlines have already trimmed capacity by 20 percent nationwide and, if the trend holds, refiners might tweak their production to make more heating oil, which could further dampen prices.
Refiners could disturb what is, for now, shaping up to be a mild season for energy markets if they significantly cut back production, said Peter Beutel, publisher of the Cameron Hanover Energy Hedger in New Canaan, Conn.
``You could see heating oil get tight,'' but it's not likely, Beutel said.
Another wild card, according to Kloza, is the effect of U.S. military action in the Middle East in the wake of the Sept. 11 terrorist attacks.
``Barring that, it's difficult to come up with a scenario that is going to lead to higher prices during the six-month heating season,'' Kloza said.