If the weather cooperates, this winter’s heating bills could be a lot more affordable than last year.
Barring a severe cold snap, like that one that drove up heating costs to a five-year high last year, the Amherst-based energy company said this winter’s bills are expected to be about 20 percent lower than they were last winter, according to a new forecast by National Fuel Gas Co.
If temperatures this winter are normal, National Fuel estimates that the average residential customer will pay $648 to heat their home between November and March. That would be $160 less than last winter and about 4 percent less than the average winter heating bill over the past five years.
Even after adjusting last winter’s heating costs to reflect normal temperatures and a more typical consumption pattern by consumers, heating bills this winter still are expected to be 13 percent lower during the upcoming heating season, National Fuel said.
“It’s good news for consumers,” said Karen Merkel, a National Fuel spokeswoman. “It will be down significantly, compared to last year.”
Of course, predicting heating costs is far from an exact science, since how much consumers end up paying depends, in large part, on how cold the winter is. An unusually cold winter like last year’s, which was 13 percent colder than normal, drives up heating bills in two ways, first by pushing up the price of natural gas, and then by forcing consumers to use more gas to keep their homes and apartments warm.
Likewise, a warm winter, like the one two years ago, helps consumers by depressing the price of natural gas and allowing them to reduce consumption.
Natural gas commodity prices remain relatively low, hovering around $4 per 1,000 cubic feet, thanks to a robust supply of gas stemming from soaring production from shale gas formations, using the controversial hydraulic fracturing drilling methods. Those shale wells, including more than 5,000 producing wells in Pennsylvania, have led to a rapid rise in natural gas production that has outstripped demand, pushing prices down.
Western New York’s proximity to the prolific shale gas fields in Pennsylvania also is helping to keep heating costs down, said Gary Marchiori, the president of EnergyMark, a Williamsville-based energy services firm.
While natural gas futures are trading for around $4 on the New York Mercantile Exchange, prices at trading hubs in the Marcellus Shale region in Pennsylvania have been running about 50 percent lower in early fall, according to the Energy Information Administration.
Commodity prices in the Marcellus Shale region are depressed because there is not enough pipeline capacity to ship the vast amounts of gas the area is producing to markets in the Northeast and elsewhere that need it, creating a severe oversupply. And while several major pipeline expansion projects are in the works, including one by National Fuel that will run through Western New York and transport gas from Pennsylvania to markets in Canada beginning in 2016, those projects are not coming into service fast enough to make a big dent in the supply glut, Marchiori said.
That’s good for consumers because, not only is the commodity price of nearby natural gas supplies lower, but the cost of transporting that gas to Western New York also is less because it only has to travel on pipelines from Pennsylvania, rather than from the Gulf of Mexico or other far-away regions, as it did before the shale gas boom. The shorter distance that natural gas has to travel reduces the transportation costs that ultimately are passed on to consumers.
“We get the benefit of that local production,” said Marchiori, which is offering consumers a fixed-price option for this winter that is 22 percent below last winter’s cost. “And I do consider it local, even though it’s a couple of pipelines away.”
That helps because, coming off last winter’s harsh temperatures, natural gas stockpiles nationally are expected to be about 10 percent below their five-year average when the winter heating season begins in November, according to the Energy Information Administration.
Gas inventories, which were depleted after last winter, have been gradually rebuilt during the spring and summer, with stockpiles growing at a rate that was faster than the five-week average during every week since mid-April. Adam Longson, an analyst at Morgan Stanley, said in a report Monday that he expects storage injections to remain elevated in the coming weeks, which would further narrow the inventory gap.
While this winter’s heating costs are projected to be the second-most expensive in the last four years, they’re still a far cry from heating costs that routinely topped $1,000 from 2005 to 2009. That’s because natural gas futures prices, which stood at around $8 per 1,000 cubic feet at the beginning of the 2008-09 heating season, were just $3.90 on Monday, thanks to increased gas production.
If those projections hold true, it would be the six straight winter of relatively low heating bills in the Buffalo Niagara region. Heating costs during each of the last five winters have been running about 37 percent lower than the $1,065 they averaged from 2005 to 2008. Even with last year’s spike, heating costs last winter were 24 percent lower than the 2005-08 average.
National Fuel, like all utilities in the state, does not make a profit on the natural gas that it sells its customers. National Fuel’s gas costs differ because the utility has bought about half of its gas in advance and stores it underground until it’s needed, and it also buys some of its gas through advance-purchase contracts or purchases on the spot market.
The utility makes its money on the rates, negotiated through the state Public Service Commission, that it charges its customers to deliver gas to their homes and businesses. Those delivery rates have not changed since 2007.
Increased energy efficiency also has helped Western New Yorkers reduce the amount of natural gas they use to heat their homes by more than 40 percent since 1973, through more efficient furnaces and water heaters, and programmable thermostats, although as heating costs have dipped in recent years, consumption has inched higher.
About 86 percent of the households in Buffalo Niagara heat with natural gas, the U.S. Census Bureau says, while 7 percent heat with electricity and 3 percent with fuel oil.