Written on: October 25, 2021 by ICM
According to the U.S. Energy Information Administration’s (EIA) October Winter Fuels Outlook, EIA expects U.S. households that primarily heat with propane to spend more this heating season (October through March) than during the past several winters because of higher propane prices and slightly colder temperatures compared to last winter.
About 5% of all U.S. households use propane as their primary space heating fuel, EIA said. At least 14% of homes in Vermont, New Hampshire, South Dakota, North Dakota and Montana use propane as their primary heating fuel. EIA forecasts seasonal expenditures for the average household using propane as its primary space heating fuel to be $2,012 in the Northeast, $1,805 in the Midwest, and $1,643 in the South this winter. These forecasts are 47% more in the Northeast, 69% more in the Midwest, and 43% more in the South compared with last winter, EAI noted. Higher retail propane prices are the main contributors to these increases.
Heading into the winter heating season, propane inventory levels are low, and wholesale prices are high, which are driving up retail prices. As of Oct. 13, the wholesale propane spot price at the Mont Belvieu hub near Houston, Texas, was $1.42 per gallon (gal), up 90 cents/gal from the same time in 2020 and the highest level since February 2014, when especially cold weather and distribution bottlenecks led to significant price increases in the Midwest.
Wholesale propane price increases have been driven by relatively high global demand, relatively flat U.S. propane production, and lower global production, EIA said. These factors have contributed to relatively low propane inventories, which measured 71.7 million barrels on Oct. 8 (including propylene at refineries), or 21% below the previous five-year average.
EIA reported another factor is the National Oceanic and Atmospheric Administration’s forecast for a slightly colder winter this year compared with last winter. Cold weather can affect household heating expenditures in two ways—first, it raises the amount of energy required to keep a house at a specific temperature, which increases demand; second, very cold weather events have the potential to cause supply disruptions. High propane demand and low propane supply situations can be more acute when fuel inventories are already low, EIA said.