U.S. consumers likely to pay more for propane heating during the upcoming winter

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average winter household energy expenditures

Source: U.S. Energy Information Administration, Short-Term Energy Outlook: Winter Fuels Outlook

In our Winter Fuels Outlook, to be released later today, we forecast that U.S. households will spend more money on energy this winter than last winter, especially households that primarily heat with propane or heating oil. Forecast expenditures are based on our expectations of high retail energy prices—many are already at multiyear highs—and of slightly more energy consumption per household than in the previous winter. Notably, many energy prices reached multiyear lows last year as a result of the COVID-19 pandemic.

In October, we release our Winter Fuels Outlook as part of our Short-Term Energy Outlook (STEO). The Winter Fuels Outlook focuses on retail energy markets for the four most common heating fuels in the United States and forecasts energy expenditures from October through March for residential households, in particular. Our forecast is based in part on information from our Residential Energy Consumption Survey, and we categorize household consumption and expenditures based on primary heating fuels. However, the forecast expenditures reflect consumption across all energy uses, not just heating.

Retail energy prices for several fuels are already at their highest point in several years. Although price increases over the past year can be attributed to several factors, the main reason wholesale prices of natural gas, crude oil, and petroleum products have risen is that fuel demand has increased from recent lows faster than supply, in part, because of economic recovery after the first year of the COVID-19 pandemic. To varying degrees, these increases in wholesale prices are being passed through to consumers.

Changes in wholesale propane and heating oil prices pass through to retail prices much more quickly than changes in wholesale natural gas or electricity prices pass through to customers’ rates. In addition, many propane and heating oil users buy supplies before winter and refill as needed. When forecasting expenditures, we assume the consumer’s cost for the fuel is the retail price at the time they use the fuel rather than the actual purchase price.

winter residential retail energy prices

Source: U.S. Energy Information Administration, Short-Term Energy Outlook: Winter Fuels Outlook

Residential energy consumption in our forecast relies heavily on weather expectations, which we base on the National Oceanic and Atmospheric Administration’s (NOAA) most recent forecast of how cold a winter it will be, using heating degree days as the measure. Heating degree days reflect temperature deviations from a base temperature of 65 degrees Fahrenheit, and more heating degree days indicate colder weather.

In our outlook, U.S. population-weighted heating degree days for the upcoming winter are 3% higher than last winter, indicating colder temperatures. This increase is relatively consistent across the country. Because weather conditions are a key source of uncertainty in these forecasts, our outlook contains two other scenarios of winter weather: one that is colder than NOAA’s base forecast and one that is warmer. Notably, we forecast that U.S. households will spend more this winter, whether the weather is warmer or colder than expected because of considerably higher fuel prices this winter.

More information is available in our Winter Fuels Outlook, which will be released later today and updated throughout the winter, concurrent with STEO releases. You may also register to virtually attend our presentation of this report to the National Association of State Energy Officials on Tuesday, October 19.

Principal contributor: EIA Staff