Experts anticipate increase in winter heating costs

NEW YORK -- Almost all Americans will pay more to heat their homes this winter, even though temperatures are expected to be warmer than average.

That is the sobering message from an Energy Department report Tuesday that estimates natural gas bills, on average, will rise 10 percent and heating oil costs are likely to jump 22 percent between October and March.

Government weather experts say this winter will be colder than last year's but warmer than the average winter over the last 30 years.

Households that rely on natural gas will pay almost 10 percent more this winter, up $78 to an average $891 in total expenditures.

Naperville-based Nicor Gas sells natural gas to about 2 million consumers and businesses in the Chicago area. In the spring it posted higher prices than those in the same period the previous year: 88 cents per therm for gas delivered in the month of June, compared to 50 cents a year earlier -- a 76 percent boost. For May, the price was 86 cents, compared to 61 cents a year ago, a 40 percent jump.

Nicor passes the cost of gas directly to consumers, charging separately for distribution and delivery.

The Energy Department forecasts the residential price for natural gas this winter at $13.14 for 1,000 cubic feet compared to $12.36 last winter.

Propane users, located mainly in rural areas, will pay $1,570, up $221, or 16 percent, from last year. Propane will cost $2.28 a gallon, 26 cents more than last winter.

Electricity will be the best bargain this winter, with costs running $855 for the season, up 4 percent, or $32, the government said. Electricity will average 10.3 cents per kilowatt hour, up from 10.1 cents per kwh from last year. The government said about 30 percent of Americans heat their homes by electricity.

Helping to keep gas prices in check will be plenty of supply. Inventories have remained high as new sources of natural gas were tapped this year and a cooler summer depressed demand.

"We could have all-time record storage by the beginning of February," said Tim Evans, an analyst at Citigroup in New York.

But all that could turn around if oil prices stay high and electricity plant operators switch to natural gas for facilities that can burn either fuel, said Ron Denhardt, CEO of Strategic Energy & Economic Research Inc., in Winchester, Mass.

Surging crude oil prices are the primary culprit for the jump in fuel oil costs. This spring and summer, American refineries experienced an unusual number of unexpected maintenance outages. The net result was fewer refineries were producing gasoline, heating oil and other petroleum products.

Refiners scrambled to produce enough gasoline to meet peak summer driving demand.

"Because they used every ounce of the refinery to produce gasoline, it came at the expense of distillate fuels" like home heating oil, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The Energy Department estimated a gallon of heating oil will rise to $2.88 this winter as crude oil prices stay high.

Heating oil is used by 7 percent of American households, mostly in the Northeast.