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The Energy Markets Division (MassDOER) tracks energy prices and consumption, including those associated with the cost of heating homes, during the winter. DOER analyzed weather forecasts and the projected prices and consumption for this winter for the major heating fuel sources (natural gas, heating oil, propane, electric heating) to provide the following heating season cost projections for 2016-2017.
Colder Winter Predicted and Higher Fuel Costs will likely Increase Average Household Heating Expenditures Except for Electric Heat
Based on predictions for a colder winter (October-March) than the last year (see National Weather Service October 2016) and higher fuel costs for crude oil, DOER is projecting an increase in fuel bills for all residential heating fuels this winter with the exception of electric heating. Due to lower projected natural gas prices for generation of electricity, electric heating prices are expected to decrease. However, natural gas heating costs will increase, despite lower natural gas prices, due to projected increased consumption as a result of expected colder weather.
DOER estimates heating expenses for this winter for an average residential customer will be: $728 for natural gas; $2,171 for oil; $2,176 for propane, and $553 for electric heating. Projected expenditures are based on the average price of fuel; consumers’ expected fuel usage; and anticipated weather conditions. Historically, space heating (see definition at end of page) is the largest component, fifty-nine percent (59%), of a Massachusetts household’s energy expenditures.
DOER’s comparison of this year’s consumer heating expenditures versus the previous year’s shows an increase in consumer heating expenditures for natural gas (13%), heating oil (44%)and propane (22%) fuels; with a slight decrease (-2%) in expenditures for electric heat customers: (see Table 1).
Figure 1 provides a summary by fuel type of this winter’s projected average residential heating bills and the past five heating seasons. See Table 2 below for the corresponding numbers.
Figure 1: Estimated Average Residential Winter Heating Bills by Fuel
Data source: U.S. DOE/EIA; Mass. Utility Filings, DOER SHOPP surveys
Figure 1 is calculated based on costs associated with the average household usage by fuel type and is a useful comparison year to year for any one fuel type. This chart should not be used to compare one fuel type to another because it is not normalized for factors that affect fuel usage such as size of household or square footage. For example, it may appear that electric heat is a lower cost alternative to other fuels, however; electric heat is generally used in smaller spaces such as apartments and condos and is actually more expensive both on a square foot basis and based on a comparison of energy delivered. Energy delivered or “energy intensity” is a better comparison among fuels because it measures energy delivered (energy intensity) using a common unit of measurement. In Figure 2, energy intensity is expressed as the cost of energy versus the amount of energy produced in millions of British thermal units (MMBtu), (One Btu is the heat required to raise the temperature of one pound of water by one degree Fahrenheit.)-U.S. EIA). Based on energy intensity, Figure 2 depicts electricity as the highest cost fuel.
Figure 2: Measuring Energy Intensity of Heating Fuels by Prices per Millions of British Thermal Units (MMBTU)
Data source: U.S. DOE/EIA; utility filings; and DOER analysis
Anticipated Higher Crude Prices and Increased Consumption Lead to Higher Residential Bills
Natural Gas: Based on the utilities’ natural gas filings at the Department of Public Utilities (DPU). DOER estimates that the projected natural gas price this winter will decrease to an average $10.50/MMBtu compared with $10.90/MMBtu last winter. Pipeline constraints still exist in the Northeast, especially into New England, that can contribute to day-to-day price volatility during periods of cold temperatures. There will be additional capacity available to deliver natural gas from the Marcellus region in Pennsylvania to New England with the start-up of the Algonquin Incremental Market (AIM) Project, which began incremental service in Fall 2016.
Heating Oil: Higher heating oil prices reflect higher crude oil prices. The U.S. EIA estimates that the cost of Brent crude oil spot prices will average $43/ barrel this winter, an increase of about $9/barrel (22 cents/gallon) from last winter. The increase in crude prices is attributed to the gradual tightening of global oil supplies.
Propane: Propane is impacted by higher crude oil and natural gas prices, as these are the fuels used to make propane. As a result of higher crude oil prices, propane prices are expected to rise about 7% this winter. This increase is lower than the expected 20% increase in heating oil prices due to natural gas prices decreasing slightly (-4%). While supply issues that have occurred in past years such as the prolonged cold weather throughout the U.S. during the winter, or late season crop drying in the Midwest resulting in high usage of propane stocks are not expected to reoccur, rising exports to international markets could impact available supply and drive up prices.
Electricity: Based on filings by the Electric Distribution Companies with the DPU, basic service also known as energy supply prices for Massachusetts utilities will decrease for this winter. This is largely due to lower natural gas prices since natural gas is the primary fuel used for electric generation in the region. DOER estimates the residential basic service rate will decrease about 9% from 19.42 cents last winter to 17.65 cents this winter. As a result the average total monthly customer bill will be decrease by $10 to $15. Municipal electric heat customers should check with their individual utility for prices.
Renewable thermal technologies, including cold climate heat pumps, solar water heating, and biomass pellet heating, are attractive new technologies now entering the market that can offer homeowners significant energy costs savings. DOER is supporting these emerging technologies, as outlined on DOER’s website under Renewable Energy.
For consumers interested in following energy markets and prices throughout the heating season, the U.S. DOE’s Energy Information Administration (EIA) tracks energy prices and the issues influencing them. This information is published in, “This Week in Petroleum” (TWIP) on DOE’s website, www.eia.doe.gov. To assist in tracking factors impacting all heating fuels, EIA also publishes the “Annual Winter Fuels Outlook” as part of its monthly Short-Term Energy Outlook.
2016-17 Winter Weather Expected to be Colder than Last Winter
While fuel costs are the primary factor in establishing winter heating prices, winter weather is the other driver having a significant impact on heating bills, as energy expenditures are a function of fuel usage. Colder weather leads to higher usage and warmer weather leads to lower usage. DOER expects that heating fuel usage, calculated based on projected Heating Degree Days (HDD-see definition below) will be higher than last winter, increasing consumers’ heating expenditures. Nationally, The National Weather Service (NWS) forecasters expect winter temperatures to be 12% colder overall this winter than last winter but 3% warmer than a “normal” winter, as measured by the 10-year average of Heating Degree Days. For Massachusetts, this winter is expected to be 1% warmer than normal but 17% colder than last winter. Colder weather will lead to higher consumption for consumers for this winter.
Based on these predictions and higher fuel costs for crude oil, DOER is projecting an increase in fuel bills for all residential heating fuels this winter except electric heating which is decreasing slightly due to lower generation prices.
Comprehensive Household Heating Data for Average Residential Customers
Table 2 provides the comprehensive average residential pricing and consumption data for the past five years and estimates for this heating season.
Table 2: Household Heating Fuel Consumption and Expenditures
Heating Degree Days: Heating degree day (HDD) is a measurement designed to reflect the demand for energy needed to heat a building. It is derived from measurements of outside air temperature of 65 degrees. The heating requirements for a given structure at a specific location are considered to be directly proportional to the number of HDD at that location. The difference between the average daily temperature and the base temperature of 65 degrees is the heating degrees for that day.
Space Heating: The use of energy to generate heat for warmth in housing units using space-heating equipment. The equipment could be the main space-heating equipment or secondary space-heating equipment. It does not include the use of energy to operate appliances (such as lights, televisions, and refrigerators) that give off heat as a byproduct (U.S.EIA