Why Are Heating Bills Increasing This Winter?

On chilly winter mornings, we reach for the thermostat before getting our first cup of coffee. But like grocery bills, home heating fuel prices are on the rise just as temperatures start to drop.

The U.S. Energy Information Administration (EIA) estimates U.S. consumers will pay an average of 17.5 percent more this winter more for natural gas, electricity, heating oil and propane. Predicted colder than average temperatures combined with higher fuel prices could have a significant impact on your budget.

The EIA’s 2022 Winter Fuels Outlook breaks down what to expect this winter when you review your heating bill. A lot depends on where you live and who provides your fuel. A milder or more severe winter than predicted by the National Oceanic and Atmospheric Administration (NOAA) will also affect the estimates.

What Is Causing Heating Bills To Rise?

Higher prices in the wholesale fuel markets and higher demand by consumers will drive up heating bills this winter, according to the EIA.

Because we can’t easily change how we heat our homes, fuel markets can be more volatile than other commodities. Disruptions like the pandemic and Russia’s invasion of Ukraine impact consumers directly by affecting wholesale fuel prices. Those higher prices are then passed on to consumers, although the speed of rate increases depends on the fuel type.

Weather plays a major role, too. People use more energy in the winter to heat their homes, and that rise in demand can cause supply disruptions. If fuel inventories are low, prices may rise.

Below are some cost factors for specific fuels.

Why Is the Cost of Natural Gas Rising?

Higher consumption and rising retail natural gas prices mean consumers will pay 28 percent higher heating bills this year, or about $931.

Wholesale natural gas prices are based on what’s called the Henry Hub spot price, and that’s expected to be 54 percent higher this winter than last, according to the EIA. (The Henry Hub is a major pipeline distribution hub in Louisiana.)

That increase, which factors in production, inventories and market demand, doesn’t immediately pass through to consumers because of the natural gas market’s regulatory structure. So you’re unlikely to see a 54 percent increase on your heating bill.

The U.S. is projected to end this year’s “injection season” (when producers store natural gas for withdrawal during winter) with the lowest levels of reserve inventories in three years. That’s partially due to exporters shipping liquified natural gas (LNG) to Europe after Russia cut off their supply. High demand in Europe means high prices for exporters and lower reserves in the U.S.

Why Is the Cost of Electricity Rising?

The EIA predicts higher consumption and higher prices will push consumer electricity costs up 10 percent this winter compared to last. That’s about $1,360 per household on average and reflects the total electricity cost of a home, including lights and appliances.

The cost of electricity is depends on the cost of other fuels, namely natural gas. From January to July of this year, U.S. electricity producers paid three times more for natural gas than the same period in 2020, according to the EIA. Other factors include upkeep of plants and transmission lines, weather and regulatory requirements.

Residential customers in deregulated energy markets see a pass-through of higher wholesale prices more quickly than regulated ones. So if you live in the Northeast, you’re expected to pay eight percent more this winter. In the more regulated market in the West, it’ll be closer to four percent.

Why Is the Cost of Propane Rising?

Household propane costs will be up about five percent this winter, due to higher consumption. That’s about $80 more than last year, or $1,680. This estimate does not include homes on the West Coast because the EIA doesn’t collect propane data there.

Similar to natural gas, propane has a spot price, measured at a hub near Houston. That price at the end of September 2022 was down 40 percent from last year. Last winter the propane markets were more volatile due to lower inventories and higher prices, but have since leveled off.

Propane prices are highly regional. While consumption is expected to go up in all measured sectors, prices will be up four percent in the Northeast, down three percent in the South and stay the same in the Midwest.

Why Is the Cost of Heating Oil Rising?

Low inventories, limited refining capacity and low imports in the U.S. distillate market will push retail heating oil prices up this winter, according to the EIA. Couple that with higher consumption due to the forecasted cold winter, and consumers will be paying $2,350 to heat their homes this winter, up 27 percent.

Heating oil prices depend on the costs of three things: crude oil, refining that crude into heating oil and delivering it to homes. As a result, heating oil prices tend to track with crude oil prices. When the price of crude is steady, prices tend to go up in the winter when demand is highest. Regional competition also plays a role.

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