Consumers, who've been hit by high prices at the gasoline pumps, can expect similar sticker shock this winter if they use natural gas to heat their homes. Natural gas prices could jump as much as 15 percent, the Department of Energy predicted yesterday.
Those who rely on oil heat can expect to pay about the same as they did last winter, or a little over $1.30 per gallon on average, the department said yesterday in its monthly short-term energy outlook.
But the department warned that if East Coast weather is colder than normal, or if inventories can't be built up by the start of the heating season in October, prices of heating oil could rise to as high as $1.40 per gallon to $1.55 per gallon.
"We're making the assumption that the weather is going to be normal for the winter," said Neil Gamson, an energy analyst in the Energy Information Administration of the DOE. "Inventories of heating oil are in the normal range right now. Based on those assumptions and the assumption of crude oil prices, we don't see much average change for the whole six-month season, compared to last year."
The department expects heating oil to average $1.33 per gallon during the last three months of the year and $1.32 per gallon during the first quarter of 2004.
Though inventories of heating oil are below average for this time of year, production and imports of oil are at record levels, all of which should help keep consumer prices stable, said John Felmy, chief economist at the American Petroleum Institute in Washington.
But natural gas will cost consumers more because of rising wholesale prices, which will be passed on to residential customers, Gamson said. Last winter, wholesale prices averaged $3.60 per thousand cubic feet, compared with an anticipated $4.60 per thousand cubic feet during the 2003-2004 season, he said.
Peggy Laramie, a spokeswoman for the American Gas Association, a trade group that represents natural gas utilities such as BGE, attributed the increase in wholesale prices to the growing difficulty producers are having in keeping up with increased demand for natural gas in everything from home heating, electric power generation and manufacturing to commercial uses, such as heating schools or cooling hospitals.
"Demand for natural gas is rising steadily, and in the next 20 years the U.S. will be consuming 50 percent more," Laramie said.
The trade group believes that producers can't keep up with the demand because of "red tape and federal regulations," such as delays in getting drilling permits and prohibitions on drilling or looking for natural gas in some areas of the country, Laramie said.
"What's happening is we're caught in the squeeze," she said. "Demand has increased, but it's hard for producers to keep up with current demand, much less stay ahead of the curve to bring the price down."
Gamson said gas in storage is now about 13 percent below year-ago levels and "that keeps prices high," he said.
"One of the things to look for is what sort of autumn we're going to have. November and October are critical months, because that can change the amount of gas in storage if we have a very cold November and go into the heart of the heating season without much storage."
If natural gas prices rise as predicted, the spike could trigger an increase in the price of heating oil, said Patricia Date, general manager of Rittenhouse Fuel Co. of Parkville, which delivers home heating oil mostly to residential customers in the Baltimore area.
That could occur as commercial users of natural gas are cut off because of shortages and turn to oil heat as a backup, she said. "That's when the price of oil goes up," she said.
Unlike the practice in some typically colder parts of the country, Date said, her customers tend not to place orders ahead of time to store fuel for the colder months, but instead get automatic deliveries based on temperatures.
"People don't think about the heat until it gets cold," she said.