A recent webinar hosted by the Energy Information Administration...(EIA is the statistical analysis counterpart to the U.S. Department of Energy)...gave participants the first glimpse into the thinking of U.S. energy officials regarding the upcoming heating season.
First, Michael Halpert, of the National Climate Prediction Center, reviewed the previous winter, wherein actual temperatures across the board were higher than normal. For the 2017-18 winter, he noted that Pacific Sea Surface Temperatures indicate a La Nina anomaly, but that the North Atlantic Oscillation...(which affects temperatures in the Northeast)...showed a particularly ill-defined set of weather variables.
"There is not a lot of support at this time", he noted "for lower than normal temperatures from multiple climate models," adding that, "heating degree days are nonetheless expected to be some 12% higher than the abnormally warm weather of 2016-17." He concluded that, at this time there is a "33% equal chance of warmer than, colder than or normal winter weather" for the Northeast. In other words, they just don't know for sure!
Second, Eric Lee, Senior Energy Analyst at Citi Commodities Research (CCR), reviewed the national and international crude oil supply/demand/price outlook for 2018 and beyond. CCR anticipates that Brent crude will average $54 bbl for 2018 versus $50 bbl for WTI. The supply versus demand "overhang" will continue into next year and beyond with total world supply averaging some 99.7 m/b/d versus demand of only 98.2 m/b/d. He also noted that, "US shale oil producers have significantly lowered their production costs to approximately $40 bbl", the net result being that, with Brent and WTI crude prices expected to be in the $50-55 bbl range, "domestic shale producers will continue to contribute up to 7.4 m/b/d, thus sustaining the supply/demand imbalance for the foreseeable future". All in all, he suggested that this situation bodes well for "downstream distributors and consumers who can look forward to relatively stable prices in the 2018-19 time frame".
As far as the actual Winter Outlook is concerned, EIA predicts that "energy prices and, thus, consumer expenditures are expected to be higher this winter given the warmer-than-normal weather and lower crude oil prices of the two previous winters." Energy prices, across the board, are expected to be 17% higher for heating oil, 12% higher for natural gas, and 18% higher for propane than the 2016-17 winter season.
The complete EIA Winter Fuels Outlook is accessible here. Focusing more on New York State, the N.Y. State Energy Research and Development Authority (NYSERDA) conducted its own Petroleum Fuels Winter Outlook in Albany this week.
Generally agreeing with the federal government weather predictions, Matthew Milford of NYSERDA stated that, while it will still be colder than last year, there is a "greater than 33% chance of above normal temperatures for the Downstate NY region." Noting the warmest October on record, Milford detailed that as of October 28, 2017, "cumulative heating degree days are 150 HDD or 43.7% below the 40 year normal level and 18.2% below last year."
Notwithstanding that, for all energy consumers, prices are higher, it will be colder than last year, and therefore homeowner expenditures will be higher. If, however, the region experiences weather up to 10% colder than the forecast, "seasonal expenditures can be expected to be higher as follows: Heating oil...32%, Natural gas...19%, Propane...41%, and electric heat...12%."
Addressing the market share of each competing fuel, Milford noted that total occupied households in New York had remained virtually unchanged at 7.2 million since 2010. How people heat their homes, however, has changed dramatically. Natural gas added some 266,337 homes through new construction and oil-to-gas conversions and now represents some 59% of all homes. Heating oil lost 527,217 homes in the seven year period and now represents 21% of all residential units. Electric heat added some 184,594 homes and now represents 12% of the total and propane added 46,231 homes and is now at 4% of the state total.
Based on the forecast weather and price projections, Milford provided the following summary of projected expenditures:
|Heating Oil||806 gallons||$3.10/gal||$2,499|
|Natural Gas||77.5 mcf||$11.70 mcf||$903|
|Electric||6,878 kwh||$0.178 kwh||$1,224|
He cautioned, however, that these projections for all fuels "are based on NYSERDA's analysis of statewide averages and that, due to normal weather patterns, consumption numbers are lower in the Downstate versus Upstate markets. Similarly, average natural gas and electric prices are higher than the statewide average for those local distribution companies...(Consolidated Edison, Orange & Rockland, National Grid/LIPA)...located in the Downstate region...(Hudson Valley, NYC and LI)."
For Matt Milford's complete analysis, click here.