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Colder winter to spur US natural gas demand, says EIA

In a recent outlook, the EIA forecasts higher US demand for heating fuels

US demand for heating fuels, including natural gas, is expected to rise this winter as temperatures east of the Rockies are forecast to be lower than last year, the Energy Information Administration (EIA) said in its most recent Short Term Energy and Winter Fuels Outlook.

Heating degree days, a measure of demand, are expected to be significantly higher this winter, according to the National Oceanic and Atmospheric Administration's (NOAA) winter forecast. The northeast, midwest, and southern states will be about 2% warmer than the 30-year average, but still 20-27% colder than last winter, while the west is projected to be only about 1% colder than last winter, the NOAA forecasts.

Natural gas accounts for about half of the total space-heating demand for some 115 million homes in the lower 48 states, while electricity supplies about a third, with smaller contributions from wood, propane and kerosene. Electricity is generated mainly from coal.

Though it accounts for a smaller proportion in other parts of the country, fuel oil meets about a quarter of heating fuel demand in the US northeast, making it a significant contributor to the overall heating mix at around 10%.

The EIA projects average household expenditures for heating oil and natural gas will increase by 19% and 15%, respectively, this winter compared with last winter. Projected household expenditures are 5% higher for electricity and 13% for propane.

The EIA is forecasting a 2% increase in residential heating oil prices and a 1% rise in natural gas. Winter average electricity and propane prices are expected to average about 2% and 4% lower than last winter, respectively.

However, a 10% colder winter could see fuel oil prices spike 30% higher than the five-year average. “Heating oil prices remain uncertain due to their dependence on crude-oil prices”, EIA said.

Natural gas working inventories ended September at an estimated 3.7 trillion cubic feet (cf), about 8% above the same time last year. By contrast, distillate inventories are at the lower end of the five-year range.

Over the past eight winters, residential heating-oil prices have risen faster than retail gasoline prices, the report notes. Natural gas continues a downward trend. EIA expects the Henry Hub natural gas spot price, which averaged $4 per million Btu in 2011 will average $2.71/m Btu in 2012 and $3.35/m Btu in 2013.

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