Winter Fuels Outlook 2023–24

The U.S. Energy Information Administration (“EIA”) has published their Winter Fuels Outlook (“WFO”), discussing their expectations of household energy consumption and expenditures for the upcoming 2023–24 winter season. EIA expects U.S. households that use natural gas, electricity, or propane as their main heating fuel to spend less on heating this winter compared with last winter. Households that use heating oil are expected to spend slightly more.

Because average demand for heating fuels in the winter exceeds production in the United States, inventories are an important source of winter supply. U.S. natural gas and propane inventories are above the five-year (2018–2022) average going into this winter heating season because of natural gas production growth and because a mild winter in the eastern part of the country last year left inventories for natural gas and propane high. These relatively high inventories have helped keep prices for those fuels below year-ago levels. However, distillate fuel inventories, a category which includes heating oil, are well below the five-year average.

Energy Expenditures

Three main factors determine spending on space heating fuel: household characteristics, weather, and energy prices. The forecast price and winter energy spending presented in this report are mostly in nominal (i.e., not inflation-adjusted) terms. EIA assumes inflation will average 3% this winter. Given that rate of inflation, increases in expenses and prices adjusted for inflation would need to be about 3% higher than the values reported to indicate increases beyond inflation.

Household Characteristics

The average household expenses discussed in the WFO are broad measures for comparing recent winters. Fuel expenditures depend on the size and energy efficiency of individual homes, their heating equipment and thermostat settings, and the weather conditions. Each fuel also has its own market structure, physical infrastructure, regulations, and limitations that can affect how retail prices move in relationship to wholesale prices.

Weather Assumptions

Weather assumptions in the WFO include a combination of data from the National Oceanic and Atmospheric Administration and the previous 30-year trend. EIA uses heating degree days as a measure of how cold temperatures are compared with a base temperature. EIA has also eliminated October as a winter month as it has only accounted for 6% of winter heating demand over the past 10 years and adjusted data comparisons accordingly.

Wholesale Market Conditions and Prices

In general, EIA expects the prices U.S. residential consumers pay for fuels will be lower this winter than last winter. The lower prices are most notable for natural gas. EIA also forecasts that retail prices for heating oil and propane will be lower this winter than last. Propane prices have decreased because of rising natural gas production. Heating oil prices have decreased because of lower refining margins for distillate fuel, which includes heating oil and diesel.

EIA expects U.S. average retail electricity prices will be slightly lower than last year as wholesale changes slowly pass through to retail rates. Wholesale price changes for heating oil and propane are passed to consumers quickly because rates in those markets are not regulated as they are for natural gas and electricity.

Natural Gas

This winter EIA expects a decrease in spending on natural gas compared with last winter, driven by a more than 20% decline in natural gas prices in its base case. Because EIA expects consumption to be about the same as last winter, EIA expects the lower price will drive a more than 20% decrease in expenditures.

Compared with a year ago, U.S. natural gas production growth this year has not kept pace with growth in LNG exports and record consumption in the electric power sector this summer, leading to lower-than-average storage injections in July, August, and September. Despite this, natural gas inventories remain above the five-year average, and EIA expects natural gas supplies will be sufficient to meet winter demand in the base case. U.S. working natural gas inventories in all five regions of the country are above the five-year average heading into the winter heating season.

Propane

Propane is used as a winter heating fuel in 5% of U.S. households, mostly in rural areas in the Midwest, Northeast, and South. Propane is also used in commercial grain dryers and in industry as a petrochemical feedstock. EIA expects households heating with propane in the Northeast will spend an average of $1,700 per household, which is slightly higher than last winter. The EIA forecasts an increase in Northeast expenditures for propane-fueled heating based on their forecast that the region’s propane prices will be 5% lower and there will be 6% more household propane consumption, on average.

EIA expects households in the Midwest to spend about $1,300, 11% less than last winter, reflecting a forecast for a 13% drop in propane prices and slightly higher propane consumption. In the South, EIA expects households to spend about $1,180, 6% more than last winter, reflecting a 9% increase in consumption and a 3% decline in propane prices.

EIA forecasts U.S. propane plant and refinery production to increase by about 6% this winter compared with last winter. EIA expects U.S. propane consumption across all sectors to be up about 4% this winter compared to last winter, because of increased propane use for space heating and for petrochemical production.

The United States exports more propane than it consumes, and EIA forecasts 12% more net exports of U.S. propane this winter than last winter. Higher propane exports reflect elevated global demand for propane as a petrochemical feedstock, especially in East Asia.

Heating Oil

Heating oil, a variation of distillate fuel, is the primary space heating fuel for 4% of U.S. households. EIA forecasts households that heat primarily with heating oil will use about 440 gallons on average this winter. The Northeast has relatively little refinery capacity and therefore relatively little production of distillate fuel oil, including heating oil. East Coast distillate supplies come primarily from transfers from other regions, particularly the U.S. Gulf Coast, as well as imports, particularly from Canada.

Electricity

U.S. households that heat primarily with electricity will spend an average of about $1,060 this winter on their electricity bills, which is about the same as last winter. A slight increase in forecast average U.S. electricity consumption is offset by an expected 2% decline in U.S. residential electricity prices.

For the upcoming winter, the largest driver of changes in electricity expenditures is the level of consumption. For the West, EIA forecasts 10% less residential consumption because of milder expected temperatures. In contrast, their forecast of winter consumption rises by 5% in the South.

EIA forecasts a slight decrease in residential electricity prices this winter, with U.S. prices averaging 15.2 cents per kilowatt, about 2% lower than last winter. The lower prices for retail customers reflect the relatively low cost of producing power over the past year, especially the cost of natural gas.

To read this report in more detail or to review the colder or warmer cases examined by EIA, please click here.